Small businesses should be spared from some of the proposed changes to employment rights, the Conservatives have suggested, as Whitehall’s own analysis of the legislation shows it could cost firms almost £5 billion annually.

Shadow business secretary Kevin Hollinrake argued the Employment Rights Bill would create “an existential crisis of a magnitude not seen since the pandemic” for smaller companies.

It comes after economic analysis of the Bill published by the Department for Business and Trade showed it is expected to “impose a direct cost on businesses of low billion pounds per year (i.e less than £5 billion annually)”.

It goes on to say that the plans are expected to add “less than 1.5%” to employment costs overall.

Policies such as day-one protections from unfair dismissals and ensuring guaranteed hours on zero-hours contracts are “likely to have a disproportionate cost to small and micro businesses”, according to the impact assessment.

Additionally, the document shows that changes to paternity leave will result in small businesses bearing 35% of the costs, while only accounting for 29% of employees. It also notes that 74% of small businesses employ at least one worker with a flexible contract, meaning that many will be hit with an “administrative burden” following the changes.

Proposed changes to statutory sick pay of removing the lower earnings limit and waiting period are also expected to have “a disproportionate cost to small and micro businesses”.

Downing Street has said the impact assessment shows the Bill “will have a positive impact on economic growth”.

The Bill passed its second reading on Monday, with 386 voting in favour, 105 against, majority 281.

During the debate, Mr Hollinrake, who co-founded an estate agents in 1992, told the Commons: “The question I ask myself now is when this legislation is in place, would I start that small business again today? Sadly, the answer would probably be no, certainly not one that employed any people.

“That is because the very high costs of these measures will be borne by all companies, which will then be passed on in the form of higher prices, reduced wages and lost jobs. They will fall most heavily on small businesses, for whom these measures could be existential.”

He added: “What this Bill does is put the cart firmly before the horse. For small businesses, particularly, this Bill creates an existential crisis of a magnitude not seen since the pandemic. The future of hundreds of thousands of business people and millions of jobs are in (Angela Rayner’s) hands.

“I urge her now to think again, withdraw this legislation, listen carefully not just to the unions but to the voice of business before it is too late.”

Mr Hollinrake said of the Bill’s impact assessment: “The cost on the very first page – up to £5 billion per annum. But the word ‘uncertain’ in those impact assessments is used 302 times and the word ‘risk’ 432 times, so the cost is likely to be much, much more.”

Opening the Bill’s second reading, Deputy Prime Minister Angela Rayner vowed to “turn the tide” on alleged low pay and insecure work.

Asked about the document’s predicted costs to businesses, she said: “The impact assessment also makes clear that it would have a positive impact on growth and more than 10 million workers will benefit from Labour’s plan in every corner of this country.

“And the money in their pockets will go back into the economy and will support businesses, in particular, those on the high street.”

Ms Rayner added that the Bill will end “bullying” tactics of fire and rehire, saying: “Even the threat of fire and rehire will often mean people voluntarily agree to lower pay and reduced terms and conditions.”

Prior to the debate, the Prime Minister’s official spokesman said: “What this Bill represents is an investment by businesses, by employers into their employees.

“For too long, poor productivity, insecure work and broken industrial relations have held back the economy.

“Last year we saw the highest number of working days lost to strikes since the 1980s, costing the economy billions of pounds.”

The spokesman added: “The impact assessment says it will have a positive impact on economic growth. But of course, this is not everything the Government is doing to support economic growth in the economy.”

The Trades Union Congress (TUC) said on Monday afternoon that the assessment shows that the legislation is “good for workers, good for business and good for the wider economy”.

The Bill will undergo further scrutiny at a later date.