Reversing UK employment tax rises ‘would do little to help young people find jobs’ | Resolution Foundation

Ministers should reject calls to reverse employment tax increases as a way to boost youth employment, instead providing extra funding for apprenticeships and increasing the number of youth support grants, according to a leading think tank.

The Resolution Foundation said an in-depth study showed that a cut in employers’ national insurance contributions (NICs) and a reduction in the minimum wage for those under 21 – measures called for by business groups – would do little to improve young workers’ chances of finding work.

The independent think tank said employers should access targeted workplace subsidies as “the most cost-effective way to support young people into work”.

The report stated that unless action is taken, the large number of young people not in employment, education or training (Neets) risks exceeding 1 million this year, negatively impacting the living standards of a generation.

Last month, former health secretary Alan Milburn presented the first part of a government report into why increasing numbers of people aged 16 to 24 are becoming Neets.

The Resolution Foundation’s report – titled Give Me a Chance – is expected to influence the final recommendations of Milburn, who will publish a follow-up report in the autumn.

Business lobby groups have complained that tax increases by chancellor Rachel Reeves since Labor came to power have increased employment costs, with young people bearing the brunt of the hiring freeze.

Last month, Cressida Hogg, chair of employers’ lobby group the Confederation of British Industry, said the minimum wage was fueling youth unemployment by making it too expensive to hire people at the beginning of their careers.

In a separate intervention, former prime minister Tony Blair said increases in the minimum wage for under-25s would deter businesses from hiring young people.

But the Solution Foundation said analysis of spending on a range of support for young workers showed that reversing the tax increases “would be wasteful and ineffective”.

The think tank’s report said: “Changes to employer NICs due in 2024 are suggested to discourage firms from hiring young people. But their repeal will not have a huge impact on youth employment – the vast majority of under-21s attract no employer NICs anyway.”

“Scrapping employer NICs for under-25s altogether would be very expensive, costing £5.1bn and creating just 38,000 additional jobs for young people, which would be a waste of £132,000 per job.”

Reversing increases in minimum wage rates for young workers would also have little impact on employment levels but would significantly increase the cost to the government.

“The recent convergence between minimum wage rates for young people and adults has led to calls from some to reverse these changes. But analysis finds this will have only a limited impact on employment (an additional 15,000 young people are in work) and will come at a huge cost on living standards, with the 230,000 16 to 20-year-olds for whom companies already pay the prevailing wage missing out on £379 million a year,” the report said.

Researchers found that an increase in 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, would create 2,800 additional jobs at a cost of around £36,700 each.

plan said launches This week it needs to be increased from 20,000 to 80,000 per year, creating 11,200 additional jobs per year.

The think tank also suggested extending the job guarantee to young people applying for UC and looking for work for 12 months or more, with the aim of reaching more people aged 18 to 24 and limiting the apprenticeship levy to support workers under 25.

“The economic situation is dire: apprenticeships provide public benefits of £13-15 per £1 spent for workers aged 19-24, while only £7 is required for those aged 24 and over.

“In addition, capping tax on under-25s last year would have freed up £1.55 billion, enough to fund 145,000 youth apprenticeships and provide incentives of £2,000 each to firms taking them on.”

Lindsay Judge, the think tank’s research director, said Neets’ rise to over 1 million was a “serious milestone”.

He added: “But there is no point in resorting to employer tax cuts to solve this problem. Instead, the government needs to step up its most cost-effective programmes: more youth jobs grants, a wider jobs guarantee and reforming the growth and skills tax to support the young people who will benefit most.”