MPs have urged the government to cut employer National Insurance contributions for all workers under 25, warning that rising employment costs are limiting job opportunities and training for young people.
The Work and Pensions Committee said employer National Insurance contributions should be reduced to boost employment among the more than one million 16 to 24-year-olds not in education, employment, or training. The committee described the scale of youth disengagement as a “travesty” and said ministers must “go further and faster”.
The committee said it had heard “overwhelming evidence” from businesses that rising employment costs, partly driven by National Insurance contribution increases, were reducing training and job opportunities. Young people were disproportionately affected, particularly in retail and hospitality, which have traditionally provided large numbers of first jobs.
Current rules mean employers do not pay employer National Insurance contributions for staff under 21 or apprentices under 25 unless their salary is above £50,270. For non-apprentices aged 21 to 24, employers pay 15% on annual earnings above £5,000. MPs said that gap undermines government schemes intended to improve employment rates in the same age group.
The report calls for the higher National Insurance contribution threshold to be extended to all workers under 25. The committee said this would boost vacancies, particularly entry level roles, and better align tax policy with the government’s youth employment aims.
The MPs also criticised a lack of policy coherence across youth employment measures. They said 16 to 18-year-old would-be apprentices from families on benefits can put those benefits at risk if they pursue training, while young adult carers risk losing carer’s allowance if they study for more than 21 hours a week. The committee said both rules pull against efforts to get more young people into education, training, and work.
The committee repeated earlier calls for the government to drop plans to scrap the health element of Universal Credit for under-22s, which it said would affect 150,000 young people.
Work and Pensions Committee Chair Debbie Abrahams 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.
“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 employer’s National Insurance contributions for under 25s will enable them to take a chance on talented young people.”
Sheila Flavell CBE, COO of 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.”
She added: “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.”
The committee welcomed early steps to prioritise work and training for 18 to 24-year-olds, but warned that the Youth Guarantee must not become a short lived scheme. It recommended funding the guarantee for at least the next decade, rather than only until 2029.
The committee also said government should develop options for young people outside the benefits system, after hearing that almost half of NEETs are not claimants. That finding is important because schemes routed mainly through Universal Credit will miss many people who are out of work, training, or education but not visible through benefit data.
The National Insurance recommendation comes at a difficult moment for employers. Businesses in labour intensive sectors are already balancing higher wage floors, tax changes, employment rights reforms, weak consumer demand, and pressure to invest in technology and training. Entry level hiring is often one of the first areas affected when labour costs rise because young workers may require more supervision and structured development before they become fully productive.
The Youth Jobs Grant already offers employers £3,000 for eligible young hires aged 18 to 24 who have been on Universal Credit and looking for work for six months or more: Youth jobs grant opens to employers. The committee’s recommendation goes further by targeting the tax cost of employing young workers more broadly.
The policy question is whether targeted hiring incentives are enough when broader employment costs have risen. A grant can help employers take on a specific young person, but a lower National Insurance threshold could influence the economics of all under-25 recruitment. A broad tax cut carries fiscal cost without guaranteeing high quality jobs, yet it could encourage employers to keep entry level roles open in sectors where first jobs and training routes have been squeezed.
Youth unemployment has long term consequences for both individuals and employers. Early periods outside work can affect confidence, skills, earnings, health, and future progression. Employers also lose future talent pipelines when fewer young people gain work habits, customer experience, technical exposure, and supervisory pathways.
The committee’s report places responsibility on both government and employers. Tax policy can alter incentives, but job quality will depend on training, supervision, progression, and whether businesses design roles that help young people build durable skills rather than cycling through short term work.
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