Typical tradesman rates are 250-300/day. So if they can't pass it through, it's a 4-5% pay cut. If you can accept work outside London without that pay cut, why would you continue to work in London?

So it will likely end up being passed through, which means it has an inflationary impact of 4-5% on day rates (which are going up already due to broader inflation), which in turn squeezes customers (especially households) further. It's poor timing for such a policy when inflation is already squeezing households significantly.