Kate Nicholls, chief executive of UK Hospitality, which represents the sector, said: “These measures are not without cost. If you couple that at the same time with discussions about increases in the national living wage and employers’ NICs [National Insurance Contributions], you can see that there’s going to be a significant impact on the cost base of hospitality.
“With more than half of our operating costs already taken up by employment and wage costs, any changes to that, any addition to that, will have a net impact – both on prices to the consumer but also on job opportunities for employees.”
The costs will be disproportionately higher for smaller businesses because the fixed costs of complying with these new measures will be harder to bear given their lower turnover.
Businesses are likely to try and pass on these higher costs to customers and workers through higher prices and smaller future pay rises.
If customers baulk at higher prices or regulations such as minimum wage stops employers from squeezing wage bills, companies will likely instead cut investment, training or jobs, the report warned.
Officials cited an October survey of employers by the Office for National Statistics, which found that two fifths of businesses would respond to higher labour costs by increasing their prices, while more than a sixth – 17pc – would cut staff.
Steve Alton, chief executive of the British Institute of Innkeeping, urged the Chancellor to introduce more support for the hospitality sector in next week’s Budget.
He said: “Our members pride themselves on supporting their team members – for many, their first job – with professional development that provides career pathways.
“However, the significant additional employer costs expected through the recently announced Employment Rights Bill will simply be unaffordable without levelling the current unfair level of tax that pubs face.”
Overall, the measures contained in the Employment Rights Bill will help to raise living standards but will have a “small” positive effect on economic growth, officials concluded. Some of the new costs will be offset with benefits for businesses, such as having more productive workers, officials concluded.
Sir Tim Martin, the founder and boss of JD Wetherspoon, criticised the ever-increasing level of regulation and tax on the economy since the end of the Tony Blair era.
He said: “Since then, taxes and regulation have increased and there appears to be a belief that you can regulate your way to prosperity. This belief will almost certainly lead to less investment and less prosperity.”
Ms Rayner said the measures would make millions of workers better off through stronger employment protections. She said: “We said we would get on and deliver the biggest upgrade to rights at work in a generation and the growth our economy needs – and that is exactly what we are doing.”