Employment Rights Act trade union access will cost UK businesses over £1 billion

• Trade union access reforms in the Employment Rights Act could cost UK businesses over £1 billion, according to new research from the Adam Smith Institute (ASI).

• The overall cost to the Act was estimated to cost businesses £5 billion annually, after concessions were made, ministers said it will now cost companies £1bn a year, which does not include the direct costs of trade union access.

• Specifically, small to medium enterprises (SMEs), businesses with under 250 employees, will take on a higher proportion (63 per cent) of the costs, totalling over £680 million. 

• The ASI recommends that the government exempt all SMEs from trade union access provisions, reduce regular union access from weekly to fortnightly or monthly, only permit trade union access to organisations with two or more employees of the said union and restrict union access to workplace breaks or lunchtimes.

Trade union access reforms in the Employment Rights Act could cost UK businesses over £1 billion, according to new research from the Adam Smith Institute (ASI).

UK businesses are set to incur costs to familiarisation, arbitration, general disruption and unionisation, totalling £1,078,657,364 due to trade union access rights granted in the Employment Rights Act.

The Employment Rights Act will give trade unions the right to demand physical or digital access to workplaces. The overall cost to the Act was estimated to cost businesses £5 billion annually; after concessions were made, ministers said it will now cost companies £1bn a year, this does not include the direct costs to trade union access.

For all firms in the UK, familiarisation with new union rules will cost £5.5 million, negotiation and arbitration on access will cost £113 million, disruption caused by visits will cost £66 million and increased staff unionisation will cost £894 million.

Specifically, small to medium enterprises (SMEs), businesses with under 250 employees, will take on a higher proportion (63 per cent) of the costs, totalling over £680 million. This includes £5 million on familiarisation, £111 million on arbitration, £40 million on disruption and £525 million on unionisation costs. 

The government is debating exemptions for mandatory trade union access for businesses employing less than 21 people. With this exemption, an estimated 78,000 firms would be shielded from costs of £85 million.

The ASI recommends that the government exempt all SMEs from trade union access provisions, reduce regular union access from weekly to fortnightly or monthly, only permit trade union access to organisations with 2 or more employees of the said union and restrict union access to workplace breaks or lunchtimes. 

Mitchell Palmer, Economist at the Adam Smith Institute, said:

“Businesses will have felt slight relief from revisions to the Employment Rights Act, but it’s clear that there is still much work to be done.

“The government has failed to cost mandatory trade union access for businesses, a provision that will burden small and medium businesses disproportionately because they lack the scale to absorb fixed regulatory costs. 

“The government needs to significantly narrow the scope of these provisions, including exempting SMEs and limiting the frequency and conditions under which access is granted.”

Andrew Griffith MP, Shadow Secretary of State for Business and Trade, said:

“No government that is serious about growth would ever impose these ‘one size fits all’ union access rules on small and medium-sized businesses.

“This ASI report makes sensible suggestions to mitigate the worst of the harm.”

The Rt. Hon. Lord Sharpe of Epsom OBE, Shadow Minister for Business and Trade, said: 

“The recommendations in this paper are measured, sensible and necessary. SMEs are the backbone of the British economy and already face enough challenges without having to devote additional time and effort to dealing with intrusive and expensive union access requests. The Government should take heed and adopt these recommendations in full.”

Sarah Olney MP, Liberal Democrat Business Spokesperson, said:

“Liberal Democrats worked hard to make the Employment Rights Bill as fair as possible for both small businesses and workers.

“Liberal Democrats were instrumental in securing a vital Government concession in the form of the six-month probation period for unfair dismissal. And we were clear in our support for stronger statutory sick pay and parental leave rights.

“The Government must now make sure that secondary legislation arising from the Bill is fair, workable and doesn’t place unnecessary burdens on our SMEs. Ministers must work closely with workers and the small business sector to ensure that union access provisions are not an added burden on our vital small businesses.

“In the meantime, the Government must throw our high streets an urgent lifeline, by scrapping the unfair jobs tax and giving hospitality an emergency VAT cut until April 2027.”

ENDS

For further comments or to arrange an interview, contact joanna@adamsmith.org | 0798 5540467.

Methodology:

We model the expected costs of new union access requirements across six representative business size tiers, from micro (1–9 employees) up to large (500+ employees). The model calculates four main cost categories: familiarisation, arbitration and negotiation, disruption, and unionisation. A core part of the model is the forecast for union behavior, which assumes unions will seek to access one-fifth of the ‘eligible universe’— i.e., small firms with existing members and those with over 20 employees, as per Department for Business and Trade (DBT) criteria – over the medium term. 

Familiarisation costs are incurred by the entire eligible universe and are taken directly from the DBT Impact Assessment. Arbitration and negotiation costs are incurred only by firms targeted for access; they are set uniformly at £3,424 for all but the smallest firms (30 hours of HR time; 10 hours of legal advice). Disruption costs are incurred when unions gain access; we assume that most accessed firms are visited monthly for a year and that visits distract only ⅕ of employees for an hour. We assume 50% of accessed workplaces (eventually) unionise, leading to a projected long-term unionisation cost of a 10% fall in Net Profit After Tax per employee, an estimate derived from a US event study (Lee and Mas, 2012) due to a shortage of UK figures. Unlike all other costs, unionisation costs are annual and continuous.

The Adam Smith Institute is one of the world’s leading think tanks. It was ranked first in the world among independent think tanks and as the best domestic and international economic policy think tank in the UK by the University of Pennsylvania. Independent, non-profit and non-partisan, the Institute is at the forefront of making the case for free markets and a free society, through education, research, publishing, and media outreach.