Don’t be fooled by Labour’s new workers’ rights
REEM IBRAHIM
Time and time again, politicians will promise new ‘rights’. These rights are usually in the form of new regulations, and are generally taken at face value, with the smiling faces of the beneficiaries being propagated as proof of its success.
The French economist Bastiat called this the ‘seen’ vs the ‘unseen’. The ‘seen’ is what is immediately visible when a policy is introduced. The ‘unseen’ is what most people don’t notice: the hidden costs, lost opportunities and negative unintended consequences.
If a shopkeeper’s window breaks, a glazier would be paid to fix it. What is ‘seen’ is the local economy being stimulated due to the broken window. What is unseen, however, is the shopkeeper’s ability to spend that money on new equipment or improvements. The business loses those benefits, and so the community loses out as a result.
Going around and smashing windows does not stimulate the economy, believe it or not. It merely shifts resources from one place to another, destroying value along the way.
Nowhere is the misunderstanding of this principle more evident than in the discourse on the impending Employment Rights Bill. What is ‘seen’ is lots of shiny new ‘rights’. Sick pay and parental leave enshrined from day one; ‘zero-hour’ contracts banned; and unfair dismissal rights after just six months.
The Government has now decided to appease union bosses by removing the cap for compensation during unfair dismissal claims, which currently sits at £118,000. On top of this, every employer in Britain will be required to hand their staff pro-union messaging, drafted by the state. They will be legally required to encourage staff to join a union.
All of these measures are, quite simply, concessions to trades unions.
Crucially, the ‘unseen’ consequences of these changes are not being considered.
Under current law, workers can only claim for unfair dismissal at the Tribunal after two years of service. The initial plans drawn up in the bill were going to allow employees to sue for wrongful dismissal from day one, but this has now been changed to six months.
Still, a six-month threshold is a significant reduction from the current requirements, and will undoubtedly result in a surge in claims. So employers will have to insure against this risk. The added costs to businesses could be enormous, and by removing the £118,000 cap, businesses could be liable for hundreds of thousands of pounds.
As a result, businesses will inevitably become far more cautious about who they hire in the first place. If taking on a new employee can now carry the risk of an exdraordinarily expensive tribunal claim after six months, with no cap on the amount of money they could be liable for, employers will naturally respond by hiring fewer people, favouring low-risk applicants and relying far more on automation (especially with the advancements occurring in AI) or outsourcing work. They will also be far more likely to be ruthless in the first six months of employment. If it things look as though they are not working out, perhaps the new employee is a slow learner or needs additional training support, many employers will be forced to simply terminate employment before the six month mark.
These are the ‘unseen’ consequences. The jobs that are never created, the candidates who never get a chance of employment and the businesses that are never able to scale up because the Government has imposed ill-thought-out regulatory burdens that make the risk far too high.
Requiring employers to encourage their staff to become union members is just as daft, and reveals a misunderstanding about how labour markets work. Union membership is practically non-existent in the private sector. In 2024, the overal proportion of employees who were members of trades unions continued to be significantly higher in the public sector, at almost 50%, compared to the private sector, at just over 11%.
This is because, in the private sector, if you are unhappy with compensation or working conditions, you can go somewhere else. Employers must compete for talent, and this drives up working conditions and wages.
One of the many negative unintended consequences of the Employment Rights Bill is that moving between jobs will become far more difficult. The labour market will become far less flexible and dynamic.
First, there are simply fewer jobs available to be move between. According to the ONS, the total estimated vacancies were down by 12% in August to October 2025 compared to the level a year ago, declining in 16 of the 18 industry sectors surveyed. Total estimated vacancies are now over 9% below their pre-pandemic level.
Second, employers will have to take the increased risk into consideration when making employment decisions. It is ironic. The unseen impact will hit the very vulnerable people that the Government is attempting to help. Younger people, migrants, women returning to work after having a child, those with a criminal background, anyone with career gaps; all of these groups are far more likely to be snubbed for a job (when businesses finally decide to hire) because these people will be deemed to be far too risky.
So, what will be ‘seen’ is new ‘rights’ in legislation, Labour politician’s heartfelt speeches, and Guardian news headlines welcoming these expanded ‘protections’. What we will remain ‘unseen’ are those jobs that are never created, the opportunities that are never reaped, the businesses that never expand, and the entrepreneurs that leave the UK because it is simply too costly to hire.
Just as Bastiat warned, the costs are hidden, but real. No matter how well-intentioned the legislation may be, it is quietly undermining economic prosperity.
In the end, only the outcomes matter. Unless the Government acknowledges the unseen consequences of the disastrous Employment Rights Bill, it risks creating a labour market that is simply less open, less dynamic, less flexible and less fair – precisely the opposite of what it is trying to achieve.
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This article (Don’t be fooled by Labour’s new workers’ rights) was created and published by CapX and is republished here under “Fair Use” with attribution to the author Reem Ibrahim
Featured image: The Telegraph
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