Offering targeted subsidies rather than tax breaks to provide routes into work would be the most cost-effective way to tackle the Neets crisis, according to a think tank.

The Resolution Foundation’s Take a chance on me report argues that there is a “vast gulf” in effectiveness in the range of proposals put forward by the government to encourage firms to hire young people.

The number of young people not in employment, education or training (Neet) passed one million earlier this year – a feat the Resolution Foundation believes “risks scarring the living standards of a generation”.

Earlier this month, it was reported that the government could be reconsidering the speed at which it increases the national minimum wage for 18 to 20-year-olds to be in line with the national living wage, the minimum rate for people 21 and over.

The proposed pathway had been to reduce eligibility for full national living wage to 20 in 2027, but Alan Milburn’s recent report on the youth labour market found that many employers find the lower youth rate an incentive to hire young people.

The Resolution Foundation argues that reversing the recent increases to the youth rate of the minimum wage would not be a cost-effective way to boost youth employment.

However, it recommends that the government pause its convergence with the national living wage until youth unemployment begins to fall.

Some have also argued that 2025’s increase in employers’ national insurance contributions puts employers off hiring young people, and so these should be repealed. Doing this would also have an underwhelming effect on youth unemployment, the think tank adds.

Scrapping employer NICs for under-25s entirely would cost the government £5.1 billion and create just 38,000 additional jobs for young people, it estimates.

The report argues that targeted schemes such as the Youth Jobs Grant, which starts this week, would be cheaper and more effective routes.

The report estimates that the Youth Jobs Grant, which offers firms £3,000 to hire an 18 to 24-year-old who has been on Universal Credit for six months or more, will create 2,800 additional jobs at a public cost of around £36,700 each.

The Youth Jobs Guarantee, which funds six months’ part-time employment for those out of work for at least 18 months, would cost £38,000 per additional job, making it three-and-a half times cheaper than scrapping employer NICs.

Between them, these two schemes could bring an additional 37,000 young people into work.

The report also calls for the growth and skills levy, formerly the apprenticeship levy, to be ringfenced for workers aged 24 and under, as three-fifths of these places currently go to workers over 24.

Had the government done this last year, for example, this would have freed up £1.55 billion – enough to fund 145,000 young apprenticeships and provide the firms that take them on with an incentive of £2,000 each.

Lindsay Judge, research director, said that the Neet milestone of a million was “sobering”, and could mean “lasting damage to the life chances of a generation”.

“But reaching for employer tax cuts to resolve this doesn’t add up,” she said.

“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 so that it supports young people who would benefit from it the most.”

Shazia Ejaz, director of campaigns at the Recruitment and Employment Confederation, agreed that pausing increases in the national minimum wage for young people would be sensible.

“Higher pay is vital, but rapid increases are adding to sustained cost pressures, with labour costs crucially rising faster than demand and productivity,” she said.

“That squeeze is already limiting hiring, investment and training, particularly in retail and hospitality, which have long offered a foot on the ladder to work for young people leaving school or university.”

The REC is in favour of a “moderation” of employer NICs to “remove one of the biggest barriers to hiring right now”, particularly as employers deal with the impact of the Employment Rights Act.

Ejaz added: “We support a fresh look at the apprenticeship levy to ensure it serves people with a wide range of educational backgrounds.

“There is a strong case for directing more funding towards younger apprentices aged 16-24, while also recognising the valuable role that higher-level apprenticeships can play in certain sectors. The levy system needs a better balance to allow more non university graduates to train given the pressures on limited funds.”

TUC general secretary Paul Nowak welcomed the start of the Youth Jobs Grant this week.

“Along with the Jobs Guarantee, it will open up pathways into work for young people who have been struggling to get a job” he said.

“But the scale of the crisis means the government must go further and faster. That means putting the turboboosters on the jobs guarantee scheme to ensure it’s more widely available and available sooner to those who need it.

“And while increased investment is essential, we must also ensure every apprenticeship offers a genuine opportunity to learn and earn.”

 

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