Small firms fear the new Employment Rights Bill will harm recruitment and lead to a spiralling benefits bill, a survey by the Federation of Small Businesses (FSB) shows.

The research shows that 92 per cent of small employers have concerns about measures in the Bill.

One of the main concerns cited in the Bill is changes to unfair dismissal legislation, which would expand the grounds for employees to take their new employer to a tribunal from their first day in the job.

FSB says that the Prime Minister must now show he “gets” the importance of creating and sustaining jobs by scrapping this part of the Bill, returning instead to the one-year qualifying period in place under the last Labour Government.

Small employers said that the Bill would see them:

• Recruit fewer staff (67%)
• Cancel or scale down plans for investing and expanding in the business (56%)
• Reduce headcount before the measures kick in (32%).

People out of work or with a poor job history are set to be especially hard-hit, with small employers saying they will:

• Change their recruitment or employment practices (87%)
• Avoid hiring those with a poor work history (66%)
• Avoid hiring those out of work or who haven’t had a job before (49%).

Tina McKenzie, FSB’s Policy Chair, said:

“Small firms have made it crystal clear that the Bill will not motivate them to hire more whatsoever. Their feedback is emphatic, resounding, and overwhelming.

“Ministers must show they get the risk to jobs and avoid a cavalier, dogmatic or patronising approach to the loud and clear feedback from small businesses. The economy is in no fit state for a ‘war on work’.

“If employers fear they will be sued, fewer will hire – with knock-on effects including a rising benefits bill and a lasting drag on living standards across the UK.

“These changes would have a severe negative impact on the real economy. All those who will be locked out of work as a result of this Bill deserve better from the Government.

“Removing new rules on day one dismissal processes from the Bill altogether, and returning to the one-year qualification period in place under the last Labour Government, is a more balanced approach and a cost-free route for the PM to show he gets it on the importance of creating and sustaining jobs.”