Tories to Halve Youth Employment Tax to Boost Job Growth

The Conservative Party plans to halve taxes on employing young people as part of a new initiative to address a decline in entry-level job opportunities. Kemi Badenoch is scheduled to introduce a "rescue package for young people" on Wednesday, intended to reverse a trend of decreasing youth employment under the Labour government.

The core of the plan involves reducing National Insurance contributions for businesses that hire workers under the age of 25. This initiative is projected to cost £2.3 billion annually, with senior Tories believing it could stimulate a significant increase in youth hiring.

The package will also include measures to steer young individuals away from long-term benefits. These proposed changes aim to prevent young people from immediately claiming unemployment benefits after leaving school and to restrict access to sickness payments for those with minor mental health conditions.

Badenoch stated that a "tough love" approach is necessary to counteract a situation where over a million young people are neither employed nor in education. She also highlighted the need to support employers, who she argues have been impacted by increased taxes and regulations under Labour's administration.

"The world is getting worse for young people," Badenoch told the BBC, noting a surge in youth unemployment since Labour took office. "We've seen an increase since Labour came into office of 174,000. It's now 750,000 young people who are unemployed. We've got to fix that. There's a graduate recruitment crisis, and if young people don't get a job early, that impacts their lifetime earnings. So I'm really focusing this on them."

Employers have pointed to a combination of factors under Labour as deterrents to hiring young workers, including substantial increases in the youth minimum wage, new employment rights, and higher National Insurance contributions. In 2024, Rachel Reeves implemented a £25 billion increase in employers' National Insurance, raising the rate from 13.8% to 15%. The threshold for paying employers' National Insurance was also reduced to £5,000, disproportionately affecting younger and part-time employees.

Under the proposed Conservative measures, employer National Insurance for workers aged 21 to 24 will be cut to 7.5%. This reduction is expected to allow businesses to save an average of £1,545 per young worker, thereby making them more inclined to hire. For instance, a company employing ten graduates at £30,000 each could save £18,750 annually.

The £2.3 billion annual cost of this program will be offset by reductions in existing spending, detailed in a forthcoming "Conservative Savings Plan." The tax cut will not apply to earnings exceeding the £50,270 threshold for the 40p tax rate. Workers aged 21 and under are already exempt from employers' National Insurance under previous government changes.

Shadow chancellor Andrew Griffith criticized Labour's policies, stating, "Labour are destroying the future of our young people. Their Jobs Tax, employment red tape and minimum wage hikes have seen an explosion in the cost of employing a young worker. We will fix that."

Badenoch expressed a desire to fully reverse Labour's National Insurance increase but cited affordability issues, emphasizing the particular challenges faced by young people.

Additionally, Badenoch is expected to address the need to reduce the national benefits bill at the Conservative Party conference. She stated, "We are the fiscally responsible party. Because if we run out of money, none of us are going to have anything. We need to get people off welfare and into work. The best welfare is a well-paying job. That means a lot of tough love."

Plans to potentially reduce inheritance tax are also anticipated, with options including lowering the 40% rate or increasing the tax threshold. Badenoch reaffirmed commitment to the pension triple lock but did not comment on reversing changes planned by Andy Burnham.