Thinktank rejects employer tax cuts as solution to youth unemployment
The Resolution Foundation has urged ministers to reject calls to reverse employment tax increases as a way to boost jobs for young people, advocating instead for extra funding for apprenticeships and an increase in youth support grants. The independent thinktank said an in-depth study showed that cutting employers' national insurance contributions (NICs) or reducing the minimum wage for under-21s—measures demanded by business groups—would do little to improve young people's job prospects.
According to the report titled Take a chance on me, employers should have access to targeted workplace subsidies as the most cost-effective way to get young people into work. The study comes as the number of young people not in employment, education or training (Neets) passed 1 million this year, a milestone the foundation described as a 'sobering milestone' that risks scarring the living standards of a generation.
Analysis of tax and wage changes shows limited impact
The Resolution Foundation's analysis found that repealing the 2024 changes to employer NICs would have an underwhelming effect on youth employment, as the vast majority of under-21s already attract no employer NICs. 'Scrapping employer NICs for under-25s entirely would be very expensive—costing £5.1bn and creating just 38,000 additional jobs for young people—at a wasteful ratio of £132,000 per job,' the report stated.
Similarly, reversing increases in the minimum wage rates for younger workers would have only a limited effect on employment levels while significantly increasing costs to the government. The foundation estimated that such a move would create an additional 15,000 jobs but would cost 230,000 16- to 20-year-olds already paid the prevailing rate a total of £379m a year in lost wages.
Targeted subsidies and apprenticeships recommended
Instead of broad tax cuts, the thinktank recommends scaling up the youth jobs grant, which offers companies £3,000 to hire an 18- to 24-year-old who has been on universal credit (UC) for six months or more. The foundation found that increasing the scheme from 20,000 to 80,000 annual places would create an additional 11,200 jobs a year at a cost of about £36,700 each.
The report also calls for extending the jobs guarantee to young people claiming UC and looking for work for 12 months or more, and for limiting the apprenticeship levy to supporting workers under the age of 25. 'Apprenticeships generate £13-£15 of public benefit per £1 spent for workers aged 19-24, compared with just £7 for those aged 24 and over,' the report noted, adding that ringfencing the levy for under-25s last year would have freed up £1.55bn—enough to fund 145,000 young apprenticeships and provide firms with an incentive of £2,000 each.
Business groups argue for tax relief
Business lobby groups have complained that tax rises introduced by Chancellor Rachel Reeves since Labour returned to power have raised employment costs, with young people bearing the brunt of hiring freezes. Cressida Hogg, chair of the Confederation of British Industry, said the minimum wage was fuelling youth unemployment by making it too expensive to hire people at the start of their careers. Former prime minister Tony Blair also argued that rises in the minimum wage for under-25s would deter businesses from hiring younger people.
However, the Resolution Foundation's research director, Lindsay Judge, said: 'Reaching for employer tax cuts to resolve this doesn't add up. Instead, the government should scale up their most cost-effective programmes: more youth jobs grants, a broader jobs guarantee, and reforming the growth and skills levy so that it supports young people who would benefit from it the most.'
