Minister denies Labour’s tax hikes behind youth unemployment

Baroness Jacqui Smith, the skills minister, has denied that tax hikes proposed by the Labour government are the primary cause of rising youth unemployment. Speaking to City AM, Smith stated that changes in National Insurance contributions (NICs) and minimum wages have not been the main drivers behind the increase in unemployment rates for those under 25. She argued that youth unemployment had been "largely stable" compared to the rise experienced during the previous Conservative government between 2022 and 2024.

Smith pointed out that the significant increase in youth unemployment occurred before the Labour party came to power, and since then, the situation has remained largely stable. She emphasized that businesses are concerned about rising NICs and their impact on labor costs, but they are also keen on ensuring that their workforce is actively employed. Additionally, Smith noted that young people are not required to pay NICs, and the increase in youth unemployment happened before the Labour government assumed office.

The government has been working to boost funding for small businesses employing apprentices and has announced a plan to provide £2,000 for every young person taken on as an apprentice. Smith also mentioned that a new government page would connect businesses with young people seeking apprenticeship opportunities. Labour has pledged to create 50,000 more youth apprenticeships over the next two years.

Business groups, including the British Chambers of Commerce and Confederation of British Industry, have argued that the effort to equalize the minimum wage for young workers with that for older workers has discouraged employers from hiring inexperienced employees. The National Institute of Economic and Social Research estimated that the cost of hiring graduates increased by seven percent due to higher taxes for employers and changes to the national minimum wage.

Neets tsar Alan Milburn also expressed concern, stating that the tax hike in Rachel Reeves' first budget added to the cost of employment and negatively affected high street venues. A cross-party committee of MPs called for the government to reduce employers' NICs for new workers under 25, citing overwhelming evidence from businesses that rising labor costs, partly driven by new taxes, have reduced job opportunities.

The Conservatives have pledged to halve the NICs rate from 15 percent to 7.5 percent for firms hiring young people aged 21 to 24.