MPs Call for National Insurance Cuts to Boost Youth Employment
The Work and Pensions Committee has urged the government to reduce employer national insurance contributions for under-25s, citing evidence that rising costs are limiting job oppor
By BBC News
Members of the Work and Pensions Committee have recommended that the government reduce employer national insurance contributions for all individuals under the age of 25. The committee stated that it has received significant evidence indicating that increasing employment costs, including national insurance contributions, are negatively impacting training and job vacancies, particularly for younger workers.
The committee described the current situation as a "travesty" and argued that a reduction in employer national insurance for under-25s would help address the issue. Currently, over one million individuals aged 16 to 24 are classified as not in education, employment, or training (NEET).
The government has expressed its commitment to creating opportunities for young people and reforming education to support their progression in the workforce. However, the previous administration had implemented increases in national insurance contributions for businesses, which they justified as necessary for funding public services.
In its 2024 election manifesto, the Labour Party pledged not to raise taxes on working individuals, including income tax, national insurance, or VAT. Critics have suggested that the increase in employer national insurance has limited job opportunities for young people.
Some employers have reported challenges in hiring young workers due to higher minimum wages and increased taxes, including national insurance contributions. However, the Institute for Fiscal Studies has indicated that there is no clear evidence that higher minimum wages are a significant factor in the rise of NEETs.
In April of the previous year, the rate of employer national insurance contributions increased from 13.8% to 15%, while the threshold for contributions on each employee's salary decreased from £9,100 to £5,000. Conversely, the employment allowance, which allows employers to reclaim a portion of their national insurance bill, increased from £5,000 to £10,500.
The committee noted that the retail and hospitality sectors, which typically employ a large number of young people, have been particularly affected by the rise in employer national insurance. They also highlighted a disparity between the government's employment strategies for those under 21 and those under 25.
The committee pointed out that while businesses do not incur employer national insurance contributions for employees under 21 or for apprentices under 25 (unless their salary exceeds £50,270), they are required to pay 15% on annual earnings above £5,000 for non-apprentices aged 21 to 24. This policy undermines government initiatives aimed at improving employment rates in this age group.
Additionally, the committee identified contradictions in government policies, noting that cuts to benefits for individuals in training are counterproductive to efforts to promote apprenticeships. Debbie Abrahams, chair of the committee, emphasised the need for a cohesive strategy on youth employment to resolve these inconsistencies.
Abrahams stated, "It'll improve policy coherence so no policy unintentionally pulls against attempts to help more young people into work." While the committee welcomed initial steps to prioritise work and training opportunities for 18 to 24-year-olds, they stressed that further changes are necessary to address the NEET issue.
The committee also referenced a review by former minister Alan Milburn, which found that the government spends 25 times more on benefits for young people than on supporting their transition into employment. The interim report published in May indicated that one in six young people are projected to become NEETs in the next five years, an increase from one in eight today. The report estimated that NEETs cost the UK approximately £125 billion annually due to a combination of benefit payments and lost economic output.
The report attributed the crisis to multiple factors, including the Covid-19 pandemic, the prevalence of smartphones, health issues, and a significant decline in entry-level job opportunities.
A government spokesperson reiterated their commitment to creating genuine opportunities for young people, stating, "For too long, governments have paid for failure rather than invested in people's success. We’re determined to turn that around by creating real opportunities for young people, reforming education so everyone has a clear path to a good job, and providing the support people need to stay and get on in work."