A group of British Members of Parliament (MPs) has called for a reduction in employer National Insurance (NI) contributions for all workers under the age of 25, asserting that this measure would stimulate job opportunities for young people. The Work and Pensions Committee, which made the recommendation, stated it has received substantial evidence indicating that escalating employment expenses, including employer NI, are diminishing the availability of training positions and job vacancies, particularly affecting the youth demographic.
This proposal comes amidst concerns about the high rate of young people not in education, employment, or training (NEET). In the UK, over one million individuals aged 16 to 24 fall into this category. The committee views a cut in employer NI for this age group as a crucial step to address what they term a "travesty."
The committee highlighted that the hospitality and retail sectors, which typically employ a significant number of young individuals, have been disproportionately impacted by the increase in employer NI. They also pointed out a disparity in the government's employment strategies, noting a gap between policies for those under 21 and those under 25. While employers currently benefit from exemptions on employer NI for employees under 21 and apprentices under 25 (below a certain salary threshold), they are subject to a 15% NI rate on annual earnings above £5,000 for non-apprentice employees aged 21-24. This, the committee argues, undermines initiatives aimed at improving employment rates within this age bracket.
In April of the previous year, the employer NI rate increased from 13.8% to 15%, and the threshold at which employers begin paying this tax on employee salaries decreased from £9,100 to £5,000 annually. Concurrently, the employment allowance, which allows employers to reclaim a portion of their NI bill, was raised from £5,000 to £10,500.
Critics of the employer NI hike have contended that the increased cost for businesses ultimately affects workers by limiting job prospects. Some employers have also voiced concerns that a combination of higher minimum wages and increased taxes, such as employer NI, has made hiring young people more challenging. However, research from the Institute for Fiscal Studies has indicated no definitive evidence that higher minimum wages have been a primary factor in young people becoming NEET.
The government has stated its commitment to fostering opportunities for young people through educational reforms and support programs designed to help individuals remain in and advance within the workforce. The previous administration, which implemented the NI increases, justified them at the time as necessary for funding public services. The Labour party's 2024 election manifesto pledged not to increase taxes on "working people," specifically mentioning income tax, NI, and VAT.