Skills minister denies the £25bn employer tax rise is driving youth unemployment

Smith's timing argument fits most of the record. The unemployment rate for 16- to 24-year-olds was about 10% in 2022 ^[7] and 14.6% at the start of Labour's term ^[6], a rise of roughly 4.6 percentage points under the previous government ^[20]. It has since climbed another 1.8 points, to 16.4% in the three months to July ^[5][19]. That later rise is about 28% of the increase since 2022 ^[21]. "Actually what has happened since then has been largely stable," Smith said. "So it isn't changes in NICs or minimum wage which has had the impact that you're suggesting." ^[3]

Her second argument covers fewer young people than it appears to. "Secondly, for young people they're not paying national insurance contributions anyway," she said ^[23]. Employers already pay no tax on the salaries of people hired under 21 ^[14]. The unemployment rate counts everyone from 16 to 24 ^[5]. That puts 21- to 24-year-olds inside the statistic and outside the exemption, at the 15% employer rate ^[22]. The CBI wants the exemption extended to all workers under 25 ^[14].

The skeptic's case is that payroll costs explain why the rate kept rising after 2024. The British Chambers of Commerce and the CBI said moves to bring the youth minimum wage up to the adult level deterred employers from taking on inexperienced workers ^[10]. Alan Milburn, the Neets tsar, said the tax rise in Rachel Reeves' first budget "added to the cost of employment" ^[12]. I think both accounts fit the numbers. The rise began before the tax ^[20], and the National Institute of Economic and Social Research's estimate that graduate hiring costs rose 7% because of the tax and wage changes ^[11] is a reasonable explanation for why it continued ^[19].

Smith did not dispute that the tax costs employers. "I understand that businesses would rather not have had a NICs rise," she said ^[4]. She added that businesses "also are quite keen that their workforce isn't sitting on waiting lists for operations that are keeping them out of the labour market and that of course was what we were spending that money on" ^[18]. The government's help for youth hiring comes as grants: the £2,000 per young apprentice at small firms, a new page matching firms with young applicants ^[8], and payments to firms that hire young people claiming Universal Credit ^[17].

An employer setting this quarter's hiring plan faces a choice of route for the same 22-year-old. As a regular hire, that worker carries the full employer rate ^[22]. As an apprentice at a small firm, the same worker brings the £2,000 grant ^[8]. Smith did not announce any change to employer contributions in her City AM interview ^[1].

Next quarter's question is political. Relief for the 21-to-24 band has backers among MPs and in the opposition ^[13][15], and none of them sets the rate. "Labour are destroying the future of our young people," shadow chancellor Andrew Griffith said. "We will slash the tax on youth jobs in half to give young people the opportunities they deserve." ^[16]