Young bearing the brunt of UK tax and wage changes, says BoE economist | Youth unemployment
The negative impact of the combined increase in employer taxes and minimum wages is “particularly severe” on young people, the Bank of England’s chief economist has warned.
The rise in national insurance contributions (NICs) since April last year and the government’s efforts to equalize the “national living wage” have caused a particular problem for young people trying to find work, Huw Pill said on Tuesday.
Official figures released last week showed that unemployment among 16-24 year olds is above the EU average for the first time, rising to 16.1% in the last three months of 2025. That’s the highest level since 2014, when the job market was still recovering from the financial crisis, including the pandemic.
Unemployment across the UK has risen to 5.2%, a five-year high, according to figures released last week, but Pill, appearing before the Treasury’s select committee of MPs, said he was particularly concerned about youth unemployment.
“Changes around the national living wage and changes to NICs – both of these have had a particular impact on young people,” he said, later reiterating that this was “particularly severe”.
Bank of England Governor Andrew Bailey, who stood by Pill at the committee hearing, said: “Youth unemployment is currently around 16%. That’s a high figure, it’s risen faster than the general level.”
In her first budget after Labour’s return to power in 2024, Chancellor Rachel Reeves increased the rate of employers’ national insurance contributions to 15% from 13.8% last April. The earnings threshold at which NICs are charged for workers aged 21 and over has also been reduced from £9,100 to £5,000 a year.
At the same time, the minimum wage, which increased by 6.7 percent for those aged 21 and over and by 16.3 percent for those aged 18-20 in April 2025, will also increase this year. In its manifesto, the Labor Party had promised to equalize national minimum wage rates by the next election, saying it was unfair for young workers to be paid less. But ministers are now considering a slower increase in the minimum wage for young workers due to fears of rising youth unemployment.
Youth unemployment figures do not include young people who are “economically inactive”, meaning they are not actively looking for work or are not ready to start work. Just under one million young people are unable to obtain education, employment or training, an increase of 26% on pre-pandemic levels.
Pill added that “deeper structural changes” were occurring in the labor market and one of the reasons why young people are having difficulty finding work could be a result of the Covid pandemic.
“There are these issues with the long-term effects of Covid,” he said. “Having your first job is an important way to enter the job market and be productive; however difficult, [the more that] It can have very long-term effects, and those intersect with health issues, mental health issues, and so on.
Former health secretary Alan Milburn is chairing a government review into the causes of youth unemployment and inactivity and will deliver a report this summer.
Last week he said the rise in youth unemployment posed an “existential” risk to Britain and could “throw away a generation”.
“This is not a short-term event, it’s a long-term event,” he told the BBC. “We are seeing a dramatic shift in labor markets.”
