Tories urge OBR to measure anti-growth impact of workers’ right bill

Senior Tories are urging Britain’s budget watchdog to lay bare the economic damage of Labour’s workers’ rights bill in the Budget.

Sir Mel Stride, the shadow chancellor, and Andrew Griffith, the shadow business secretary, have written to the Office for Budget Responsibility (OBR) urging it to factor in the cost of reforms that bosses warn will cripple the jobs market.

A joint letter to OBR chairman Richard Hughes warns that a failure to consider the “significant costs” of handing employees the right to sue their bosses from day one on the job risks undermining “the credibility of the fiscal forecast”, which will be published alongside Rachel Reeves’s second budget on Nov 26.

The Employment Rights Bill, championed by Angela Rayner, the former deputy prime minister, will also ban zero-hours contracts, beef up union powers and extend sick pay rights.

The Government’s own analysis has warned the plans will cost companies up to £5bn a year to implement and a chorus of business leaders have warned that the changes will discourage hiring and weigh on the economy.

The OBR warned in March that piling more pressure on businesses would likely have a “material” and “net negative” impact on jobs, prices and growth.

The Employment Rights Bill is in its final stages and could be given royal assent before the Budget next month. However, peers voted through a series of amendments last week that MPs will consider in the coming days.

Government insiders have signalled that the OBR will not offer an estimate of the impact of the bill until primary legislation is passed.

Sir Mel and Mr Griffith urged the watchdog to clarify its position.

“Given the potential scale of these impacts, and their relevance to the Chancellor’s fiscal position and ‘headroom’ under her latest fiscal rules, it would be helpful to understand the OBR’s approach to this legislation ahead of the bill’s return to the House of Commons as early as Nov 11,” the pair wrote.

They also asked the OBR to confirm its intention to score the “direct” impact on tax revenues as well as ask “whether it will consider the indirect economic effects on growth, employment, or tax receipts”.

Assessing the impact could add to the Chancellor’s woes. An expected cut of 0.3 percentage points in the OBR’s forecast for productivity growth has already left Ms Reeves scrambling to find billions more in either tax rises or spending cuts.

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The EY Item Club on Monday said it expected Britain’s economic growth to ebb from 1.5pc this year to 0.9pc next year, with “tighter fiscal policy” partly to blame.

Potential tax increases could slow down business investment, the forecaster said. The tax changes, combined with tariffs and high interest rates would likely “put a brake on economic momentum and produce modest growth over the next year”.

The OBR’s role as arbiter of whether Ms Reeves has met her “fiscal rules” – balancing the budget and reducing debt by 2030 – has made the watchdog central to the shaping of the Budget.

Some business groups are even bypassing Downing Street and lobbying the OBR directly. The Home Builders Federation penned a letter to the watchdog last week warning the Government would miss its target of building 1.5 million new homes by the end of the decade.

Under current plans, the Employment Rights Bill will empower staff to take employers to a tribunal for unfair dismissal from day one, instead of after two years of continuous service.

While ministers have insisted that workers will still be subject to a nine-month probationary period, business leaders across the country warned that the confusing legislation would inflict “significant damage” on the economy and plunge tribunal courts into chaos.

The changes will also mean unions no longer have to meet a legal threshold of a 50pc turnout in a ballot to hold a strike.

The Resolution Foundation, a Left-leaning think tank with deep ties within the Government, has warned the bill would “inhibit hiring” with “little obvious gain to workers”.

Peers are now calling on MPs to adopt an amendment that would enshrine a single probationary period into law.

The Government and OBR were contacted for comment.

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