MPs urge youth jobs tax cut

MPs have called for employer National Insurance contributions to be cut for all workers under 25, warning that rising employment costs are limiting entry level hiring and reducing training opportunities.

The Work and Pensions Committee said the higher employer NI threshold currently available for employees under 21 and apprentices under 25 should be extended to all workers under 25. The recommendation forms part of a wider report on youth employment, published amid concern that more than one million young people are not in education, employment, or training.

Evidence submitted to the committee showed employers linking higher employment costs to weaker demand for young workers, with retail and hospitality identified as sectors where the effect is especially visible. These industries have traditionally provided large numbers of first jobs, often combining paid work with informal training, customer service experience, and progression into supervisory roles.

Under current rules, employers pay no National Insurance contributions for employees under 21 or apprentices under 25 unless salary is above £50,270. For non apprentices aged 21 to 24, employers pay 15% on annual earnings above £5,000. MPs said that difference creates a gap between youth employment objectives and the cost of hiring young adults.

Work and Pensions Committee chair Debbie Abrahams said: “Reducing employer’s National Insurance contributions for under 25s will enable them to take a chance on talented young people.”

The committee also criticised benefit rules that can make it harder for young people to enter training. It said 16 to 18 year old would be apprentices from families receiving benefits may put household benefits at risk by pursuing training, while young adult carers risk losing carer’s allowance if they study for more than 21 hours a week.

The report called for a Youth Employment Strategy, longer term funding for the Youth Guarantee, and action to reach young people outside the benefits system. MPs warned that almost half of young people not in education, employment, or training are not claimants, which limits the reach of programmes built around Universal Credit.

Policy support for young workers often begins with training, careers advice, and employability, but the committee’s recommendation places employer demand at the centre of the discussion. A young person may be ready to work, yet still struggle to secure a first role if employers are reducing vacancies, delaying training, or concentrating hiring on more experienced candidates.

The cost of entry level employment has become a more sensitive management calculation. Employers are already dealing with wage floors, employer tax pressure, rent, borrowing costs, energy bills, insurance, and weaker consumer demand in parts of the economy. When margins tighten, roles that require training can be delayed, merged, or removed from recruitment plans.

That pressure sits alongside other youth employment interventions. The Youth Jobs Grant offers employers £3,000 for every eligible young person they hire under the scheme, targeting 18 to 24 year olds who have been on Universal Credit and looking for work for six months or more. The committee’s proposal would act more broadly by reducing the direct cost of taking on under 25s.

The fiscal trade off is clear. Extending employer NI relief would reduce tax receipts unless offset elsewhere, and some support would go to roles that employers may have filled anyway. The committee’s argument rests on the longer cost of youth detachment from work, including weaker earnings, lower confidence, reduced skills development, and higher risk of later reliance on support.

The recommendation would have its greatest practical effect in labour intensive sectors where training happens inside the job rather than before it. Hospitality, retail, leisure, care, logistics, contact centres, and customer service operations all depend on large numbers of early career workers. These roles provide routes into management and technical specialisms, but they are also vulnerable when operating costs rise faster than revenue.

Young workers can be disproportionately affected because they are often hired into roles with high supervision needs and limited immediate productivity. If the tax and wage cost gap between a young worker and a more experienced hire narrows, managers may choose the candidate who can contribute faster, even where the business would otherwise be willing to train.

The Youth Guarantee faces a similar delivery challenge. Funding has been announced only until 2029, and MPs warned that youth employment schemes have often been time limited and reactive. Short funding cycles make it harder for employers, local authorities, colleges, and training providers to build durable routes into work.

A successful youth employment strategy will need to address more than skills. Transport, household benefit rules, caring responsibilities, employer risk, local job density, training capacity, and wage costs all shape the point at which a young person moves into paid work. By putting employer National Insurance into the debate, MPs have raised a direct question for government: whether youth jobs policy can work while the cost of hiring young adults remains a barrier to the roles that build early careers.