A Taxing Problem for Youth Employment

The UK’s persistent youth unemployment crisis has left over one million young people outside education, employment, or training (Neet). Amidst this sea of troubles, a group of MPs has called for cutting employer national insurance contributions for all under-25s. This proposal is built on the notion that rising employment costs, particularly employer NI, are pricing young people out of the job market.

The retail and hospitality sectors employ large numbers of young workers in precarious and low-paying jobs, but they also provide a vital gateway into the workforce. Employers face an array of taxes and regulations that can make hiring and retaining staff difficult. The recent increase in employer NI contributions from 13.8% to 15%, combined with a lower threshold for paying the tax, has added to employers’ burdens.

A recent report by the Institute for Fiscal Studies found no conclusive link between higher minimum wages and Neet rates. This challenges the notion that simply tinkering with tax rates will solve the problem of youth unemployment. The IFS study highlights the complexity of the issue, pointing to factors like the Covid-19 pandemic, smartphones, health issues, and changes in the jobs market itself.

The government’s employment strategy for under-21s is at odds with its approach for those aged 25 and over. This gap needs to be bridged if policymakers are serious about tackling youth unemployment. As Debbie Abrahams, chair of the Work and Pensions Committee, has argued, there are “policy contradictions” that need to be addressed.

A unified strategy on youth employment could bring together disparate initiatives like apprenticeships and job training programs under one umbrella. This would help tackle the lack of coherence in current policy, as Abrahams puts it. A cut in employer NI contributions for all under-25s could provide a much-needed boost to young workers and their employers.

However, this must be seen as part of a broader effort to revamp the UK’s youth employment strategy. The government’s own statistics show that Neets cost the country around £125bn per year through benefit payments and lost economic output. We’re spending 25 times more on benefits for young people than we are on supporting them into work, according to Alan Milburn’s review into youth unemployment.

This stark illustration highlights how our policies have been geared towards treating symptoms rather than addressing the root causes of the problem. Cutting employer NI contributions is a start, but it’s only one piece of the puzzle in tackling youth unemployment. What’s needed now is a sustained effort to address policy contradictions and create a coherent strategy for getting young people into work.