Scrapping National Insurance for under-25s would cost taxpayers £132,000 for every young person it puts into work

Scrapping employer National Insurance contributions for under-25s would cost £5.1 billion and create just 38,000 jobs for young people.

This works out to £132,000 for every additional young person moved into work, according to new Resolution Foundation analysis.

The think tank’s report, Take a chance on me, sets out the cost of various proposals to get young people into employment, and finds wide differences in their value for money.

It comes after the number of young people not in employment, education or training (NEET) passed one million earlier this year, which the Foundation describes as the highest figure for 13 years.

The analysis examines proposals to reverse the recent convergence between youth and adult minimum wage rates.

It finds that reversing the increases would move an additional 15,000 young people into work, while the 230,000 16-20 year olds that firms already pay the prevailing rate would miss out on £379 million a year between them.

The Foundation recommends that the Government pause the convergence of the youth rate with the National Living Wage until youth unemployment begins to fall, rather than reverse it.

On employer National Insurance contributions, the report states that the vast majority of under-21s attract no employer NICs, meaning the 2024 changes have limited bearing on the hiring of the youngest workers.

It puts the cost of scrapping employer NICs for under-25s entirely at £5.1 billion, generating 38,000 additional jobs at a ratio of £132,000 per job.

The Foundation contrasts these figures with existing targeted schemes.

The Youth Jobs Grant, which offers firms £3,000 to hire an 18-24-year-old who has been on Universal Credit for six months or more, is estimated to create 2,800 additional jobs at around £36,700 each.

The Jobs Guarantee, which funds six months’ part-time employment for those out of work for at least 18 months, comes in at roughly £38,000 per additional job, which the report puts at three-and-a-half times cheaper than scrapping employer NICs.

The report says both schemes are currently too small to significantly reduce the NEET rate.

Quadrupling the Youth Jobs Grant to 80,000 annual places could create 11,200 additional jobs a year, while the Foundation recommends extending the Jobs Guarantee to young people on Universal Credit for 12 months or more.

It estimates that expanding the two schemes could help an additional 37,000 young people into work.

The analysis also addresses apprenticeship funding. Three in five apprenticeships funded through the Growth and Skills Levy go to workers aged over 24, who the Foundation says are often existing employees upskilling rather than young people entering work.

Apprenticeships generate £13-15 of public benefit per £1 spent for workers aged 19-24, compared with £7 for those aged over 24.

Ringfencing the Levy for under-25s last year would have freed up £1.55 billion, enough to fund 145,000 young apprenticeships and provide firms taking them on with an incentive of £2,000 each.

“One million young people outside of work, education or training is a sobering milestone – the highest figure for 13 years, and a reality that risks lasting damage to the life chances of a generation,” said Lindsay Judge, Research Director at the Resolution Foundation.

“But reaching for employer tax cuts to resolve this doesn’t add up. Scrapping National Insurance Contributions for under-25s would cost £132,000 for every additional young person put into work.

“The Government’s own Jobs Guarantee scheme costs only £38,000 per additional job created – three-and-a-half times cheaper. Cutting Employer NICs is not the answer.”

Judge said the government should instead scale up its most cost-effective programmes, including more Youth Jobs Grants, a broader Jobs Guarantee, and reform of the Growth and Skills Levy.

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