Targeted subsidies, rather than wasteful tax breaks, are needed for firms to tackle Britain’s NEETs crisis

Firms have a critical role to play in hiring Britain out of its NEETs crisis – but targeted subsidies, rather than expensive tax breaks, are the most cost-effective way of supporting employers to get young people into work, according to new Resolution Foundation analysis, published today (Monday).

Take a chance on me warns that Britain’s NEETs crisis – the number of young people not in employment, education or training (NEET) passed one million earlier this year – risks scarring the living standards of a generation. A range of solutions have been proposed to encourage firms to hire more young people. But the report shows that there is a vast gulf in their cost-effectiveness.

The recent convergence between youth and adult minimum wage rates has prompted calls from some to reverse these changes. But the analysis finds this would have only a limited effect on employment – an additional 15,000 young people in work – while imposing a large cost on living standards, with the 230,000 16-20 year olds that firms already pay the prevailing rate missing out on £379 million a year between them.

While reversing the recent increases to the youth rate of the minimum wage would not be a cost-effective way to boost youth employment, the Foundation warns that the Government should pause its convergence with the National Living Wage until youth unemployment begins to fall.

It has also been argued that the 2024 changes to employer NICs put firms off hiring young people. But repealing them would have an underwhelming effect on youth employment – the vast majority of under-21s attract no employer NICs anyway. Scrapping employer NICs for under-25s entirely would be very expensive – costing £5.1 billion and creating just 38,000 additional jobs for young people – at a wasteful ratio of £132,000 per job.

Instead, the Government’s existing targeted schemes show greater promise. The report estimated that 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, will create 2,800 additional jobs at a cost of 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, making it three-and-a half times cheaper than scrapping employer NICs.

However, the schemes are currently too small to significantly reduce Britain’s NEET rate. Quadrupling the Youth Jobs Grant to 80,000 annual places could create 11,200 additional jobs a year. The Foundation also recommends extending the Jobs Guarantee to young people on Universal Credit for 12-months or more, to reach more young people.

Overall, expanding these two schemes could help an additional 37,000 young people into work.

Recent RF research found that a lack of vocational education – not jobs – explains the UK’s high NEET rate relative to other comparable countries. But three-in-five apprenticeships today funded through the Growth and Skills Levy go to workers aged over 24 – often existing employees upskilling rather than young people gaining their first foothold in work.

To stop this, the Foundation is calling for the levy to be ringfenced for workers aged 24 and under. The economic case is stark: apprenticeships generate £13-15 of public benefit per £1 spent for workers aged 19-24, compared with just £7 for those aged 24 and over. Furthermore, ringfencing the Levy for under-25s last year 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 at the Resolution Foundation, said:

“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.

“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.

“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.”