OBR confirms Employment Rights Act will have a negative impact on jobs and the economy in fresh blow to UK growth, says REC

Responding to the latest OBR Economic and Fiscal Outlook, Shazia Ejaz, Director of Campaigns at the Recruitment and Employment Confederation (REC), said:

“The verdict from the Office for Budget Responsibility (OBR) is in, and it is clear they think NIC increases and the Employment Rights Act (ERA) changes are bad for jobs and bad for the economy. The government must listen and change tack on taxation and workers’ rights, to create better conditions for getting more people into work and delivering on their growth promise.

“The OBR’s analysis adds weight to concerns that employers are being asked to shoulder too many additional costs at once. Its assessment shows the combined impact of the ERA, higher employer NICs and increases to the National Living Wage weighing on hiring, investment and growth.

“The OBR analysis confirms what businesses have been telling the government about ERA changes such as the Guaranteed Hours proposals: that they will likely have a negative economic impact on businesses, through increased uncertainty, lost flexibility and higher labour-related costs, which will more than offset any potential positive impact on worker productivity. This is why the government’s guaranteed hours gamble is such a risk to the economy. It will bury employers in cost and complexity, making it harder to hire and reducing opportunities for workers seeking choice over how and when they choose to work. Ministers must work with the recruitment industry on a compromise that will not damage agency work and job creation.

“On the Budget 2024 NICs rise, the OBR suggests that sharper falls in employment among lower-paid sectors are consistent with its judgement that these firms would be most affected by the reduction of the threshold and its interaction with the National Living Wage.

“By not reversing employer NICs increases, the Chancellor missed a big opportunity in the Budget to fuel hiring. That makes it even more crucial to get a compromise that works on remaining ERA policy proposals.”

Notes to editors

Economic and fiscal outlook - October 2026: This is the Office for Budget Responsibility’s October 2026 Economic and fiscal outlook.