Keir Starmer’s government has been urged to “stick to its guns” amid growing pressure from business leaders to water down its plans to improve workers’ rights as the UK economy grinds to a halt.

The head of the Trades Union Congress said company bosses were demanding concessions as a “quid pro quo” for accepting tax increases in Rachel Reeves’ autumn budget as they sounded the alarm over Britain’s flatlining economy.

Speaking to the Guardian as he gave his new year’s message, Paul Nowak said t Labour needed to show 2025 would be “a year of delivery” after having spent much of its first six months in power fighting fires.

Making progress on a sweeping package of employment changes – which includes banning zero-hours contracts and introducing protections on day one of a job – was a critical part of this, he said, and could help Labour counter Nigel Farage’s Reform party.

Nowak said: “That whole agenda around improving the world of work was a key reason why Labour won the election. In the face of the populist right of Reform, the government has to prove it is not only serious about delivering its manifesto commitments, but that they’ll have a tangible difference on people’s lives.

“If it’s not delivered in full, it will fuel that cynicism that politics can’t make any difference; that it doesn’t matter who you vote for because ‘they’re all the same’. So it absolutely has to be done in full.”

Meanwhile, ministers face pressure to change course after economic growth during Labour’s first months in power was revised down to zero, while the Bank of England forecast no improvement in the final months of 2024.

Business groups have said the chancellor’s tough rhetoric and £25bn rise in employer national insurance contributions (NICs) announced in her autumn budget – which comes into effect from April – is chilling jobs and growth.

This week the CBI lobby group said the UK was “headed for the worst of all worlds” next year as businesses prepared to cut output and hiring, alongside plans to raise prices to help accommodate the changes.

Nowak said it was clear business groups were lobbying to water down Labour’s employment changes. “Frankly it’s been pretty crude, that the quid pro quo for the employer NICs increase is watering down the employment rights bill.

“I think that would be the worst of all possible worlds. It’s not a course I think the government will go down. I think they’ve been pretty clear that make work pay is a key part of their economic agenda as well,” he said.

Labour’s plans to upgrade employment rights could costs businesses up to £5bn a year, according to the government’s own analysis. Ministers argue this is small when considering that total wage costs in the UK were more than £1.3tn in 2023, and highlight that low-paid workers could benefit most.

However, business leaders warn the cumulative impact of carrying out multiple policy changes at the same time growth is slowing could add to the headwinds facing the UK economy.

Rupert Soames, the chair of the CBI, last month accused ministers of treating employers as a “cash cow” and urged them to water down the changes to workers’ rights.

Nowak said TUC polling showed a majority of voters supported the changes, while analysis produced by the union movement suggested they could bolster the economy by £13bn by strengthening workers’ spending power.

“When people are in better paid secure employment they’ll go out and spend that money in local shops and restaurants, buy a new car, or have extensions done on their homes or whatever that might be,” he said.

“Frankly those voices that are saying water down the employment rights bill are the same voices that said they didn’t want a national minimum wage introduced in the first place, complain every year when it goes up, and have opposed every progressive change in employment rights since time began.

“The government absolutely has to hold its nerve. The decisions in the budget were hard but ultimately in the right direction.”