Scrap employers’ NI for under-25s, say MPs

Employers’ national insurance (NI) contributions should be cut for all workers under 25 to boost employment among the more than 1 million young people not in education, employment or training (Neet), MPs have said.

In a report on youth employment, education and training, the House of Commons Work and Pensions Committee welcomed early steps taken by the government to prioritise work and training opportunities for 18 to 24-year-olds, but said the government must “go further and faster” to tackle the “travesty” of so many young people being Neet.

The committee heard “overwhelming evidence” from businesses that rising employment costs, partly driven by NI increases, were reducing training and job opportunities with young people “disproportionately” affected. This was particularly the case in retail and hospitality, traditionally big employers of young people.

It identified a gap between the government’s efforts to boost youth employment and its approach to employer national insurance.

While businesses currently pay no employer NI contributions for employees under 21 or for apprentices under 25 – unless their salary is above the £50,270 threshold – they pay 15% on annual earnings above £5,000 for non-apprentices aged 21-24, undermining government schemes to improve employment rates in this age group.

The report calls for the higher NI contribution threshold to be extended to all workers under 25, arguing this would boost vacancies, particularly entry-level roles, and better align the government’s policy with its strategic aims.

Debbie Abrahams, chair of the work and pensions committee, said: “During our inquiry, we heard from young people demoralised by the experience of unemployment. We heard how they want to work but end up feeling like leeches on their family. This situation is not only unfair to them, it is also harmful.

“Even a short spell as Neet in one’s formative years can damage mental health, impact future career opportunities and reduce lifetime earnings. Young people face an uphill struggle in current conditions to get that critical work experience.”

The committee warned that the government’s Youth Guarantee must not become a “here-today-gone-tomorrow scheme” given the UK’s history of time-limited, crisis-bound past offerings to tackle youth employment. To end this, it recommended the government announce funding for it for the next decade at least. Funding has currently only been allocated until 2029.

It said the temporary nature of past policies has damaged confidence and has caused long-term uncertainty for employers and potential young employees alike, sometimes discouraging both from engaging.

The youth guarantee aims to ensure young people claiming universal credit (UC), who have been out of work for 18 months, are offered a six-month work placement. However, MPs said the government should develop options for people outside those claiming benefits after they heard that 44% of Neets are not UC claimants.

The committee also recommended that a Youth Employment Strategy be developed.

Abrahams commented: “While the Youth Guarantee is a good start, the contradictions between the Government’s strategic aims and the rules of various schemes mean we desperately need a Youth Employment Strategy. It’ll improve policy coherence so no policy unintentionally pulls against attempts to help more young people into work.

“But, efforts to give young people the best chance to live independently will be in vain if there are too few jobs to go to. In a challenging environment, businesses need help to meet rising employment costs. Reducing employers’ national insurance contributions for under-25s will enable them to take a chance on talented young people.”

Sheila Flavell, chief operating officer at the talent consultancy FDM Group, said: “Recent conversations around graduate employment focus on whether people have jobs, but not actually on whether they have the right jobs.

“Underemployment is a growing threat for the UK labour market. We have capable, ambitious graduates working in roles well below their skill level, and that is a waste of talent on a national scale.”

“What’s missing is a practical bridge between education and industry. ‘Earn-while-you-learn’ models and structured, industry-led training give graduates the chance to build real-world experience and move into long-term careers matched to their skills.”

 

 

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