Employers are urged to eliminate National Insurance contributions on workers under 25 after parliamentary debate highlighted the impact of current rates on young employment.
The Work and Pensions Committee noted that higher employer National Insurance increases discourage hiring, especially in retail and hospitality, sectors traditionally offering entry‑level roles.
More than one million 16‑to‑24‑year‑olds are currently not in education, employment or training, a statistic the committee described as a travesty of the labour market.
Small‑medium enterprises face a stark cost differential: staff under 21 and apprentices under 25 are exempt until earnings reach £50,270, whereas a 21‑to‑24‑year‑old non‑apprentice triggers a 15% rate on earnings above £5,000.
This “cliff” means a 20‑year‑old and a 22‑year‑old performing identical work incur materially different payroll costs, undermining national efforts to boost youth employment.
The committee referenced a former minister’s review, which found the government spends twenty‑five times more on benefits for young people than on initiatives to help them enter the workforce.
Since the rise in employer contributions by £25 billion, job cuts have accelerated, with the hospitality and retail sectors absorbing the majority of losses.
In response, a £3,000 grant has been introduced for hiring 18‑to‑24‑year‑olds who have claimed benefits for six months or more, and foundation apprenticeships will expand into hospitality and retail from April.
While the committee welcomed these measures, it stressed that additional action is necessary to avert long‑term damage to the labour market.
A grant is a one‑off payment, whereas a National Insurance exemption automatically applies through payroll, offering continuous cost savings that are especially valuable for businesses with tight margins and limited HR resources.
Concerns about job quality were raised, with a chief operating officer noting that underemployment remains a growing threat, as capable graduates occupy roles below their skill level.
She advocated for structured, industry‑led training and “earn while you learn” models that can bridge the gap between education and industry, an area where smaller firms can often act more swiftly than larger corporations.
The near‑million NEET figure highlights a sizeable pool of potential workers currently overlooked by the market.
Extending the under‑21 exemption to all under‑25 workers carries fiscal implications, but the committee argues that the alternative—higher benefit costs—would ultimately be more expensive for the public purse.
