Why Tax Cuts Won't Solve Youth Unemployment: A Better Approach

A leading thinktank, the Resolution Foundation, has urged ministers to reject calls to reverse employment tax increases as a way to boost jobs for young people. Instead, they advocate for extra funding for apprenticeships and increasing youth support grants.

The Problem: Rising Youth Unemployment

The number of young people not in employment, education, or training (Neets) has surpassed 1 million this year, risking scarring the living standards of a generation. The government-commissioned Milburn review is investigating this crisis, and the Resolution Foundation's report, Take a chance on me, is expected to influence its final recommendations.

Why Tax Cuts Won't Work

Business groups have called for cuts to employers' national insurance contributions (NICs) and a reduction in the minimum wage for under-21s. However, the Resolution Foundation's analysis found that:

• Repealing employer NICs would have an underwhelming effect. Scrapping them entirely for under-25s would cost £5.1bn and create only 38,000 jobs – a wasteful ratio of £132,000 per job.
• Reversing minimum wage increases for younger workers would add only 15,000 jobs while costing young workers £379m a year in lost wages.

A More Effective Solution: Targeted Subsidies

The thinktank recommends targeted workplace subsidies as the most cost-effective way to support youth employment:

• Increase the youth jobs grant (currently £3,000 for hiring 18-24 year olds on Universal Credit) from 20,000 to 80,000 annual places, creating an additional 11,200 jobs a year.
• Extend the jobs guarantee to young people claiming Universal Credit for 12 months or more.
• Reform the apprenticeship levy to focus on under-25s. Apprenticeships generate £13-£15 of public benefit per £1 spent for workers aged 19-24, compared to just £7 for those aged 24 and over.

Lindsay Judge, the thinktank's research director, said: "Reaching for employer tax cuts to resolve this doesn’t add up. Instead, the government should scale up their most cost-effective programmes: more youth jobs grants, a broader jobs guarantee, and reforming the growth and skills levy."