Ministers are reviewing plans to align minimum wage rates for younger workers with older employees amid concerns that rising employment costs are contributing to higher youth unemployment.
Youth unemployment has climbed to 16.1 percent, the highest level in more than a decade, with almost one in six people aged 18 to 24 out of work. The increase has prompted warnings from business groups that policy changes are making it harder for younger workers to enter the labour market.
According to The Times, ministers are now considering whether to delay or scale back a pledge to equalise pay rates, as concerns grow about the impact on hiring.
Rising costs linked to hiring slowdown for younger workers
Employers have pointed to a combination of rising minimum wages, increased national insurance contributions and expanded employment rights as factors increasing the cost of hiring.
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Since the change in government, minimum pay for workers aged over 21 has risen by 6.7 percent, while the cost of employing those aged 18 to 20 has increased by 16.3 percent. A further rise of 8 percent for younger workers is expected in April.
Business groups say these changes are already affecting recruitment decisions. Research from the Federation of Small Businesses found that 45 percent of small firms employing 16 to 20 year olds had reduced hiring as a result of the higher costs.
Tina McKenzie, policy chair at the Federation of Small Businesses, was quoted in The Times as saying that rising costs were limiting opportunities for younger workers. “From this April, compared to the start of last year, it will cost 26 percent more to employ someone on the 18-20 rate — the same wage bill that covered a team of five young people will soon only stretch to four.”
She said small firms remained willing to hire but faced growing constraints.
“Small businesses want to give young people opportunities, but the government is making it harder and harder to do so. If the government is serious about tackling youth unemployment, it cannot keep piling costs and regulatory burdens onto the very employers most likely to give a young person their first job.”
Policy rethink under consideration
Officials are now examining options including delaying the timetable for equalising wage rates or limiting changes to older age groups.
A government source said rising unemployment had intensified the need to review the policy. “There is no point increasing minimum pay for young workers if they haven’t got jobs to go to.”
Alan Milburn, the former health secretary who is leading a government review into youth employment, said reducing risks for employers would be key to improving outcomes. “Obviously when an employer takes on a young person, it’s always a risk for a very simple reason: they’re unproven,” he told the BBC.
He said broader reform would be needed to address the issue. “So what we’ve got to do is to make sure we’re minimising the risks and maximising the incentives … We risk a generation on the scrapheap. The system isn’t working, either on the demand side or the supply side. And that does entail radical change.”
Wider labour market pressures persist
The rise in youth unemployment comes alongside broader labour market changes, with overall unemployment close to a five-year high.
While the government has pointed to an increase in overall employment and plans to expand apprenticeship opportunities, employers say more targeted measures may be needed to support entry level hiring.
Pat McFadden, the work and pensions secretary, said efforts were underway to improve access to jobs. “Our £1.5 billion drive to tackle youth unemployment is a key priority and this month we announced that we’ll make it easier for young people to find and secure an apprenticeship, which comes on top of our investment to create 50,000 new apprenticeships.”
With costs rising and hiring slowing, the debate over youth pay is likely to remain central to how employers balance fairness, affordability and access to work for younger employees.
