‘Give workers the security they deserve’

Labour’s manifesto pledged to ban exploitative zero-hour contracts and improve security for working people. The government passed new legislation – the Employment Rights Act – to deliver on their commitments.

These policies are vital. Exploitative zero-hour contracts are a blight on the UK’s labour market. Too many working people don’t know what they’re going to be paid from one week to the next.

More than three-quarters of the public want the government to ban them. Previous governments have seemed unable – or unwilling – to do anything about it, but under this administration we’re finally getting action. 

Prime Minister Andy Burnham has pledged his government will create ‘breathing space’ for British people, and this is exactly the kind of policy that can achieve this. Banning exploitative zero hours contracts will stabilise people’s hours, giving them predictable incomes and allowing them to plan for the future financially. 

The government can boost living standards by banning these contracts 

To ban exploitative contracts, the government is introducing a new right to guaranteed hours. The aim is simple: if someone regularly works beyond their contracted hours, they should be offered a contract that reflects the hours they actually work – if they want one. 

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The government is deciding how to implement the new right. Ministers are deciding where to set the ‘low hours threshold’ – essentially a cap on the number of workers who will qualify, based on their contracted hours. They’re planning to set the threshold somewhere between 8 and 20 weekly hours. 

IPPR analysis found that this risks excluding many of the workers who would benefit most from greater predictability and security. We found that workers on contracts without fixed hours who work between 20 and 30 hours a week are 73 per cent more likely to be behind on bills than comparable workers on fixed-hours contracts.

A threshold of 8 to 20 hours would exclude these workers. It means someone on a 24-hour contract who consistently works an extra 8 hours every week would be excluded, despite regularly working a 32-hour week. 

That’s why we think the government should raise the threshold to 30 hours. This simple change could help thousands more workers access the stable hours, reliable income and financial security that their hard work deserves. 

Navigating the impact on businesses and the jobs market 

One of the government’s considerations when implementing the policy is the potential impact on hiring and employment. This shouldn’t be taken lightly given there’s already a NEETs crisis and a weaker jobs market. 

IPPR’s analysis finds that retail businesses and public sector employers will be most affected by a 30-hour threshold. Younger workers on these contracts will benefit most from setting a 30-hour threshold. 

This clarifies the trade-offs ministers must navigate when designing the policy. The truth is that wherever the government sets the threshold, it is younger workers who will be most impacted: more than a third of workers who don’t have fixed hours in their contracts are aged 16-25. 

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Our recommendation is that ministers accept this trade-off and remain guided by the policy’s overarching priority – to tackle income insecurity and boost living standards – while pulling a wider set of policy levers to support young NEETs into work. The Prime Minister’s pledge to focus on technical training, and the government’s plans to invest in new apprenticeships and jobs for young people, will start to deliver on these aims. 

Ministers have a trade-off to navigate 

It was recently reported that banning zero-hour contracts could cost businesses up to £3 billion. It’s true that this kind of policy change isn’t free: businesses warn it will raise their costs, and the government accepts there will be a financial hit to employers. 

The government thinks the maximum possible cost to businesses is £2.9 billion, but they estimate it’s most likely the hit to businesses will be around £1.1 billion, and could be as low as £350 million. The final figure will depend on how ministers decide to implement the policy and how business behaviour changes in response. Even if it isas high as businesses fear, this would only translate into a limited increase on their labour costs. 

Ultimately, the government has a trade-off to navigate. Do ministers believe there is a case for removing these contracts from the market, to give workers stable incomes? Or do they want to avoid raising costs on businesses? 

IPPR thinks the government should deliver on its manifesto commitment to ban these contracts. There is a clear case for removing exploitative zero hours contracts from the labour market. We believe that ministers can design the policy so it supports workers who need it most. But no one should be under any illusion that this kind of policy change – or any other – is a free lunch. 

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