The Resolution Foundation has called on ministers to reject reversing employment tax increases as a way to boost youth employment, instead advocating for targeted workplace subsidies and increased funding for apprenticeships and youth support grants.
Tax cuts ineffective for youth employment
The independent thinktank’s in-depth study found that cutting employers’ national insurance contributions (NICs) and reducing the minimum wage for under-21s – measures demanded by business groups – would do little to improve job prospects for younger workers. The report argues that targeted workplace subsidies are “the most cost-effective way of supporting them to get young people into work”.
Unless action is taken, the report warns that a high number of young people not in employment, education or training (Neets), which surpassed 1 million this year, risks scarring the living standards of a generation. Last month, former health secretary Alan Milburn presented the first part of a government-commissioned report on the rising Neet numbers. The Resolution Foundation’s report, titled “Take a chance on me”, is expected to influence Milburn’s final recommendations in the autumn.
Business calls for tax relief rejected
Business lobby groups have complained that tax rises introduced by Chancellor Rachel Reeves since Labour returned to power have increased 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 at the start of careers. Former prime minister Tony Blair also said rises in the minimum wage for under-25s would deter hiring.
However, the Resolution Foundation said analysis of spending on support for young workers showed reversing tax rises “would be wasteful and ineffective”. The report states: “It has been argued that the 2024 changes to employer NICs put firms off hiring young people. But repealing them would have an underwhelming effect on youth employment – the vast majority of under-21s attract no employer NICs anyway.”
Costly measures with limited impact
The thinktank calculated that scrapping employer NICs for under-25s entirely would cost £5.1bn and create just 38,000 additional jobs – a ratio of £132,000 per job. Reversing increases in minimum wage rates for younger workers would also have limited effect, creating an additional 15,000 jobs while imposing a large cost on living standards. The report notes that 230,000 16- to 20-year-olds already paid the prevailing rate would miss out on £379m a year between them.
Targeted subsidies recommended
Researchers found that increasing the youth jobs grant – which offers companies £3,000 to hire an 18- to 24-year-old who has been on universal credit for six months or more – would create 2,800 additional jobs at a cost of about £36,700 each. The report recommends expanding the scheme from 20,000 to 80,000 annual places, creating an extra 11,200 jobs per year.
The thinktank also suggests extending the jobs guarantee to young people claiming universal credit for 12 months or more, and limiting the apprenticeship levy to supporting workers under 25. The report highlights that 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. 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 a £2,000 incentive each.
Call for action on Neets
Lindsay Judge, the thinktank’s research director, said the increase in Neets to over 1 million was “a sobering milestone”. She added: “But 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.”
