Prime Minister Andy Burnham has been told to cut job taxes for under-25s to tackle the nation's unemployment crisis. The work and pensions committee said there was “overwhelming evidence” that a £25bn raid on employer National Insurance contributions (NICs) had contributed to a growing youth unemployment crisis.
Proposal to exempt under-25s from employer NICs
The committee recommended that companies should only have to pay NICs on the wages of workers aged 25 or older. This would effectively exempt younger employees from the tax, making it cheaper for businesses to hire them.
Rachel Reeves, the former Chancellor under Sir Keir Starmer's premiership, raised the employer NIC tax rate to 15% and lowered the pay threshold at which it kicks in from £9,100 per year to £5,000. The MPs' report, published on Wednesday, blamed this policy for disproportionately affecting young people.
Impact on youth employment
“This has had a knock-on impact on young people. They have been disproportionately affected by slower recruitment, which can then inhibit their future career progression as they struggle to secure their first job,” the MPs warned in their report.
Debbie Abrahams, the Labour MP and chairman of the committee, said young people were “demoralised by the experience of unemployment”. She added: “Young people face an uphill struggle in current conditions to get that critical work experience. 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 NICs for under 25s will enable them to take a chance on talented young people.”
Government response and business reaction
Ms Reeves has now been replaced by Chancellor John Healey, who was appointed to Number 11 Downing Street on Monday in Mr Burnham's first cabinet shuffle. The new government faces pressure to act on the committee's recommendations.
Alan Vallance, the chief executive of the ICAEW, said: “The choices of previous administrations have left businesses facing burdens that stifle growth, diminish confidence and discourage investment. If the new Government is serious about growth, it must create the conditions for businesses to invest, hire and expand.”
The proposal to reduce employer NICs for under-25s is seen as a key measure to stimulate youth employment and support economic recovery.
