A minister has defended plans to ban zero hours contracts, after Government analysis suggested it could cost businesses up to £3 billion a year.

Skills minister Baroness Jacqui Smith said the Government’s proposed ban on zero hours contracts would ensure workers are “fairly paid” and secure in their jobs, after the warning was published on Wednesday.

The proposed reforms are still expected to “support growth” by improving conditions for workers, an impact assessment also says.

The direct cost to employers of a ban as a whole could be between £350 million and £2.9 billion per year – with an “indicative central” estimate of £1.1 billion, according to the data.

The Government is consulting on whether to apply the policy to anyone working 48 hours a week, but its preference is for the threshold to be between eight and 20 hours.

Speaking to Sky News, Lady Smith said the Government will continue to talk to employers about how improvements for workers are implemented.

The skills minister also said: “We will look very carefully at how we implement the changes that we have put in place through our Employment Rights Act.

“But just to remind people why we did that in the first place, that’s to make sure that when people get into work, that will be work that is fairly paid, where they’ve got security, where they can combine it with the responsibilities that they have in their families.”

She added: “I don’t think it’s fair for somebody to be on a contract where they literally don’t know whether or not they’re going to be working at all, and yet they’re bound by that contract.

“So, that’s what we want to bring an end to.”

In its analysis, the Government said the proposals would mean workers were expected to receive payments of between £5 million and £1.2 billion because of the right to payments for shifts getting cut or moved at short notice.

It said the measures are expected to “support growth through improved worker wellbeing and engagement”, which research suggests is linked to increased productivity.

“There may also be wider benefits due to higher wellbeing and labour market participation. Stress, depression and anxiety accounted for 22.1 million lost working days in 2024/25, equivalent to around £6.5 billion in lost output,” the paper added.

But the British Chambers of Commerce (BCC) said the potential costs outlined on Wednesday risk “a hammer blow to young people’s job prospects”.

Kate Shoesmith, director of policy at the BCC, added: “We are already facing a youth unemployment crisis – now is not the time to make it even more costly for employers to hire.

Helen Dickinson, chief executive of the British Retail Consortium, meanwhile said: “The scale of these costs raises serious questions about whether the guaranteed hours reforms will actually deliver value for workers, with the cost to employers appearing hugely disproportionate to the benefits for employees.

“These estimates also only tell part of the story, as retailers will have to fork out hundreds of millions of pounds to update their HR and payroll systems.”