The Work and Pensions Committee has called for reducing employer national insurance contributions for all under-25s as a measure to improve job prospects for young people. The committee cited substantial evidence that elevated employment costs, particularly from employer NI, are constraining training opportunities and job openings in this demographic. The issue is underscored by statistics showing over one million individuals aged 16 to 24 are classified as not in education, employment, or training, a situation the committee characterized as a significant concern.
The committee identified a structural inconsistency in government policy. While businesses currently pay no employer NI for employees under 21 or apprentices under 25 earning below the £50,270 threshold, they must pay 15% on earnings above £5,000 for non-apprentices aged 21 to 24. This creates what the committee described as a policy gap that undermines efforts to boost employment in the older youth age bracket. Additionally, the committee noted contradictions between benefit reductions for trainees and initiatives promoting apprenticeships, characterizing this disconnect as lacking coherence.
The current NI rates took effect in April of last year, when the employer contribution rate increased from 13.8% to 15%, while the threshold for payment dropped from £9,100 to £5,000 annually per employee. The retail and hospitality sectors, which traditionally employ substantial numbers of young workers, have been particularly affected by these changes. Committee chair Debbie Abrahams emphasized the need for a unified government strategy on youth employment to eliminate policy contradictions and improve outcomes.
A recent independent review found that government spending on benefits for young people exceeds spending on work and training support by a factor of 25. Economic modeling suggests that without intervention, one in six young people could become classified as not in education, employment, or training within five years, compared to the current one in eight. The estimated annual cost to the United Kingdom from youth unemployment is approximately £125 billion when accounting for benefit expenditures and foregone economic productivity. The government stated it remains committed to creating opportunities for young people and supporting career progression.
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