Public and private sector employers are being warned to expect a wave of wage demands worth billion after the government confirmed plans to restrict expenses for contractors.
The government plans to introduce law that prevents all but the most independent of contractors from claiming travel expenses. It says the plans will bring contractors into line with other workers, while critics describe it as an attack on enterprising freelancers who do not have the job security of normal employees.
Until now, an estimated 1.6 million contractors and freelancers have been able to claim tax relief for travel from home to temporary workplaces.
Crawford Temple, CEO of trade body PRISM, said: "My message to employers is brace yourself because the hole you need to plug could be worth up to £7 billion.
"Rather than helping employers grow public and private enterprises steadily using flexible labour, the government is trying to scoop up more cash all the while knowing that wage bills will have to rise.
"Officials using contractors to staff hospitals, schools and big public projects are going to get an awful shock when they start putting their hand out for more, just so they can take home what they were earning a month earlier.
"Private companies struggling to stay afloat and using flexible workers to cut full-time wages will be hit hard too as the difference in cost narrows."