Retailers urge Chancellor to ease youth employment costs

Leading British retailers have urged Chancellor John Healey to reduce employment costs ahead of the October Budget, arguing that higher payroll taxes are restricting recruitment opportunities and making it harder for younger people to enter the workforce.

Executives from major retail and hospitality businesses, including Marks & Spencer, Tesco, Sainsbury’s, Costa Coffee and the Co-op, discussed the pressures facing their sectors at a meeting with the Chancellor on 13 October. Their concerns include the cost of part-time employment and the financial implications of employer National Insurance contributions.

The British Retail Consortium has proposed increasing the annual earnings threshold at which employers become liable for National Insurance contributions from £5,000 to £6,000. The organisation argues that reducing the tax associated with lower-paid positions would help employers maintain recruitment and create opportunities for people entering the labour market.

The standard employer National Insurance threshold was reduced from £9,100 to £5,000 in April 2025, when the main contribution rate also increased from 13.8% to 15%. Those changes increased payroll expenditure for many businesses, particularly those employing substantial numbers of part-time workers.

There is an important qualification to the industry’s youth employment argument. Employers already benefit from a separate National Insurance exemption for employees under 21, with contributions generally payable only on earnings above £50,270 a year. A similar provision applies to qualifying apprentices under 25.

Raising the standard £5,000 threshold would therefore provide direct relief principally on employment that falls under the ordinary contribution rules, including positions held by workers aged 21 and over. The extent to which such a change would encourage additional recruitment among younger teenagers is less straightforward.

The distinction matters because retailers employ people across a range of age groups and working arrangements. Students, part-time employees and those combining work with other commitments form an important part of the labour force, while employees progressing into their twenties may move between different National Insurance categories.

For large employers, relatively modest changes in the cost of an individual position can have substantial consequences across hundreds of stores and thousands of employees. Staffing expenditure influences decisions about opening hours, replacement recruitment, the number of available shifts and investment in operational technology.

Industry representatives argue that higher employment costs have encouraged businesses to review vacancies and staffing levels. Those assessments must be considered alongside weak demand in parts of the high street, changes in shopping habits and the cost of maintaining physical premises.

A reduction in employer contributions would lower the direct cost of eligible employment, but additional jobs would depend on individual businesses deciding to use the resulting savings for recruitment. Some may instead direct the money towards maintaining existing operations, improving wages or absorbing other cost increases.

Retail employers have separately criticised business rates, particularly the potential treatment of larger stores and distribution properties. The interaction between physical shops, online operations and logistics infrastructure complicates attempts to distinguish high street activity from the facilities that support it.

These concerns arrive as the government examines the broader challenge of youth unemployment and the number of young people outside education, employment or training. Employers have called for measures addressing entry-level job costs, while other policy proposals focus on apprenticeships, vocational skills and the transition from education into employment.

Training and taxation influence different elements of recruitment. Employers may be more willing to create a vacancy when its recurring cost is manageable, but filling that position still depends on the availability of suitable applicants and the training required to perform the work.

The Chancellor faces competing demands ahead of the Budget on 28 October. Tax relief could reduce costs for employers, but changes to National Insurance would also affect government revenues while ministers are seeking to maintain commitments on borrowing and public expenditure.

Businesses have not received a commitment that the proposed threshold increase will be adopted. Any change would require a government decision, with the existing rates and exemptions remaining in force unless legislation or regulations establish a different arrangement.

The outcome of the discussions will be judged partly by whether the Budget addresses the direct costs of employing people and partly by the wider measures introduced to support recruitment. The existing under-21 exemption remains central to assessing which workers and employers would benefit from further National Insurance relief.