The UK faces a mounting crisis in youth employment, with over one million young people aged 16 to 24 currently not in education, employment, or training (NEET). In response, a parliamentary committee has called for urgent reforms, including cutting employer national insurance (NI) contributions for all workers under 25. This bold proposal aims to reduce the cost burden on businesses and open more doors for young people struggling to find their footing in a challenging labour market.
Rising Employment Costs Are Squeezing Youth Opportunities
The Work and Pensions Committee’s recent report highlights a stark reality: rising employment costs, particularly employer NI contributions, are discouraging firms from offering training and entry-level jobs to young people. Since April 2023, the employer NI rate increased from 13.8% to 15%, and the threshold for paying NI dropped from £9,100 to £5,000 annually. Although the employment allowance doubled to £10,500, this has not offset the impact on sectors like retail and hospitality, where young workers are disproportionately employed.
These increased costs create a financial disincentive for employers to hire or train young staff, especially those aged 21 to 24 who face a 15% NI charge on earnings above £5,000. The committee points out a glaring inconsistency: while employers pay no NI for apprentices under 25 or employees under 21 (unless earning above £50,270), they face a significant NI charge for non-apprentices aged 21-24. This policy contradiction undermines government schemes designed to boost employment in this critical age group.
The Human and Economic Cost of the NEET Crisis
Being NEET during formative years has long-term consequences. The committee emphasized that even a brief period out of education or work can harm mental health, reduce future career prospects, and lower lifetime earnings. Former minister Alan Milburn’s review into youth unemployment underlined this, revealing that the government currently spends 25 times more on benefits for young people than on programs that support their entry into work.
Milburn’s interim report also projects that without intervention, one in six young people could become NEET within five years, up from one in eight today. The economic toll is staggering: the NEET population costs the UK an estimated £125 billion annually through a combination of lost productivity and increased welfare payments.
Why Cutting Employer NI Could Unlock Youth Employment
The committee’s recommendation to cut employer NI contributions for all under-25s is rooted in evidence from businesses and sector groups who say higher taxes and wage floors have made hiring young people more difficult. Lowering these costs could incentivize employers to create more entry-level roles and increase investment in training.
Critics of the current NI hike argue that while the government intended to fund public services through these taxes, the unintended consequence has been fewer opportunities for young workers. This is particularly problematic given the government’s stated commitment to supporting youth employment and apprenticeships.
Reducing employer NI for young workers would align fiscal policy with employment goals, removing a significant barrier to hiring and helping bridge the gap between government strategies for under-21s and under-25s.
Policy Contradictions and the Need for a Unified Strategy
The committee also highlighted conflicting policies that undermine youth employment efforts. For example, cuts to benefits for those in training discourage apprenticeships, while the government’s employment schemes for young people remain fragmented. This “lack of coherence” hampers progress and wastes resources.
Committee chair Debbie Abrahams called for a unified youth employment strategy that harmonizes tax policy, welfare support, and education reform. Such coherence would ensure that no policy inadvertently works against initiatives designed to help young people into work.
Government Response and the Road Ahead
The government has acknowledged the challenges but insists it remains committed to creating real opportunities for young people. Recent measures include prioritizing work and training for 18 to 24-year-olds and investing £820 million to support jobless youth. However, critics argue these steps fall short without addressing the fundamental cost barriers employers face.
Labour’s 2024 election manifesto promises not to raise taxes on working people, including NI, signaling potential political shifts in tackling youth employment. Meanwhile, independent analysts suggest that tackling the NEET crisis requires a multi-pronged approach—combining tax relief, improved education pathways, and better mental health support.
As the UK grapples with a “lost generation” of young people on the margins of the labour market, the call to cut employer national insurance for under-25s offers a clear policy lever. Whether the government acts on this recommendation will be a crucial test of its commitment to reversing the tide of youth unemployment and building a more inclusive economy.
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For more context, see related Peack News coverage and explainers linked below.