Cutting Employer NI for Under-25s: A Plan to Tackle Youth Worklessness

A response to a persistent problem

The number of young people not in education, employment or training, often abbreviated to NEET, has remained stubbornly high, with more than a million in this position. MPs have proposed cutting employer National Insurance contributions for workers under 25 as a way to make hiring young people more attractive.

The proposal reflects growing concern that youth worklessness is both an individual tragedy and an economic cost. Time spent out of work early in life can leave lasting scars on earnings and prospects, so interventions that get young people into jobs quickly can have outsized long-term value.

How the idea would work

Employers pay National Insurance contributions on their employees' wages, which adds to the cost of hiring. Cutting or removing this charge for under-25s would reduce the cost of employing a young worker, in theory encouraging firms to take on more of them.

Targeted employment incentives of this kind are not new. The logic is straightforward: lower the price of hiring a particular group, and demand for their labour should rise. The question is always how much difference the incentive makes in practice, and at what cost.

The evidence on incentives

Evidence on targeted hiring subsidies is mixed. They can boost employment among the targeted group, but there are risks of deadweight, where firms are subsidised for hiring people they would have hired anyway, and substitution, where young workers are favoured over slightly older ones who lose out.

Design matters enormously. Incentives that are simple, well-publicised and targeted at those genuinely at risk of long-term worklessness tend to perform better than broad, poorly targeted schemes. The details determine whether the policy is value for money.

The cost to the exchequer

Cutting National Insurance for a large group reduces government revenue, and that cost has to be weighed against the benefits. If the policy genuinely moves many young people into lasting work, the long-term savings in benefits and gains in tax could offset much of the cost. If it mostly subsidises existing hiring, it is poor value.

This uncertainty is why such proposals attract debate. The upfront cost is clear and immediate; the benefits are uncertain and spread over time. That asymmetry makes them a hard sell even when the underlying case is reasonable.

Beyond financial incentives

Financial incentives are only part of the picture. Many young people who are NEET face barriers that a National Insurance cut does not address, such as poor mental health, lack of skills, unstable housing or limited local job opportunities. Tackling worklessness effectively usually requires support alongside incentives.

The most successful approaches tend to combine demand-side measures, making hiring cheaper, with supply-side support, helping young people become job-ready. A tax cut alone is unlikely to solve a problem with such varied causes.

The scarring effect of early worklessness

The concern that drives youth employment policy is the lasting damage that early spells out of work can cause. Research consistently finds that unemployment or inactivity in youth can depress earnings and employment prospects for years afterwards, a phenomenon known as scarring. This makes early intervention especially valuable, because it prevents harm that is hard to undo later.

Scarring also carries wider costs, in lost tax revenue, higher benefit spending and the social consequences of long-term worklessness. This is why measures to get young people into work quickly are often justified as investments rather than costs. A policy that genuinely reduces youth worklessness can pay for itself over time, even if its upfront price is significant.

Skills and opportunity beyond incentives

A financial incentive to hire young workers addresses only part of the problem. Many young people who are not in work lack the skills, qualifications or confidence that employers seek, or live in areas with few opportunities. Tackling these deeper barriers requires investment in education, training, apprenticeships and support that a tax cut alone cannot provide.

The most effective strategies combine measures that make hiring young people more attractive with measures that make young people more employable. A National Insurance cut might open doors, but ensuring young people can walk through them requires a broader effort. Whether the proposal forms part of such a strategy, or stands alone, will determine how much difference it makes.

What to watch next

Watch whether the government takes up the proposal, how any scheme would be targeted, and whether it is paired with wider employment support. The reaction of business groups and youth charities will signal how workable and welcome the idea is.

Getting more than a million young people into work is a prize worth pursuing, both for them and for the economy. A National Insurance cut is one tool among several, and its value depends on whether it is part of a coherent strategy or a stand-alone gesture.