A minister has defended the government’s proposed plan to ban zero-hour contracts, despite analysis revealing it could cost businesses up to £3 billion a year.

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.

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

Skills minister Baroness Jacqui Smith defended the ban on Thursday, insisting it wasn’t fair for employees not to “ know whether or not they’re going to be working at all”.

“We will look very carefully at how we implement the changes that we have put in place through our Employment Rights Act,” she told Sky News.

“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 continued: “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.”

She added the government will continue to talk to employers about how improvements for workers are implemented.

Ministers have defended the reforms by arguing they will help millions of workers who face uncertainty over their weekly hours and earnings, and unions have said a ban will help offer greater security in the event of shifts being cancelled at the last minute.

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 retailers said the potential costs outlined on Wednesday risk “a hammer blow to young people’s job prospects” and the British Chambers of Commerce also voiced concern about the analysis and criticised the timing of its publication “so late in the consultation process”.

Helen Dickinson, chief executive of the British Retail Consortium said the costs “could not come at a worse time” after the rise in employer’s national insurance contributions.

“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,” she said.

“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.”

But a Trades Union Congress spokeswoman said: “The Employment Rights Act will deliver an estimated £10 billion boost to the economy – that far outstrips any costs.

“Let’s stop the scaremongering. These are common sense reforms, which bring us closer to the European mainstream.”

A government spokesperson said: “We are absolutely committed to ending exploitative zero hours contracts, where workers bear all the financial risk when hours, shifts and earnings are unpredictable.

“These reforms will give workers in every postcode greater income security and predictability of hours and while no final decisions have been made, we’re consulting to get the detail right and ensure this works in the real world.”