A new report from a prominent think tank asserts that offering targeted subsidies rather than broad tax breaks represents the most cost-effective and impactful strategy for addressing the escalating crisis of young people Not in Employment, Education, or Training (NEET). The Resolution Foundation’s "Take a chance on me" report highlights a "vast gulf" in the efficacy of various government proposals aimed at encouraging firms to hire young individuals, urging a fundamental shift in policy direction to prevent long-term societal and economic damage.
The Sobering Reality of a Million NEETs
Earlier this year, the number of young people aged 16-24 classified as NEET surpassed the one million mark, a figure the Resolution Foundation describes as "sobering" and one that "risks scarring the living standards of a generation." This milestone underscores a persistent and deepening challenge within the UK labour market, raising urgent questions about youth opportunity, economic productivity, and social mobility. The NEET phenomenon is not merely a statistical anomaly; it represents a significant cohort of young individuals facing barriers to economic participation, often leading to long-term disadvantages in terms of earnings, career progression, and overall well-being. Economically, a large NEET population translates into lost productivity, reduced tax revenues, and increased welfare expenditure, placing a substantial burden on public finances. Socially, it can foster disillusionment, mental health issues, and widening inequality, threatening the social fabric and future prosperity of the nation.
Government Dilemmas and Ineffective Proposals
The report emerges amidst ongoing government deliberations concerning the youth labour market. Earlier this month, reports indicated that ministers were reconsidering the speed at which the national minimum wage for 18 to 20-year-olds would be increased to align with the National Living Wage (NLW), currently applicable to those aged 21 and over. The original pathway had aimed for full NLW eligibility for 20-year-olds by 2027. This reconsideration was partly prompted by Alan Milburn’s recent report on the youth labour market, which suggested that many employers view the lower youth rate as an incentive to hire younger workers.
However, the Resolution Foundation strongly argues against reversing recent increases to the youth minimum wage rate, deeming it an ineffective and inefficient method to boost youth employment. While acknowledging the potential for wage increases to impact hiring decisions, the think tank’s analysis suggests that the overall benefit to employment would be minimal compared to the broader economic implications for young workers. Instead, it recommends a strategic pause in the convergence of the youth minimum wage with the National Living Wage, but only until youth unemployment figures show a sustained decline, ensuring that wage progression for young people is not unduly sacrificed without clear employment benefits.
Another proposal frequently debated is the repeal of increases in employers’ National Insurance Contributions (NICs), particularly the 2025 increase, which some argue deters firms from hiring young people. The Resolution Foundation’s analysis, however, concludes that scrapping employer NICs for under-25s entirely would have an underwhelming effect on youth unemployment, despite its considerable cost. The report estimates that such a measure would cost the government a substantial £5.1 billion, yet would only generate approximately 38,000 additional jobs for young people. This stark cost-benefit ratio highlights the inefficiency of broad-brush tax cuts as a primary solution to the targeted problem of youth unemployment. To put this into perspective, the cost per additional job created through scrapping NICs would exceed £134,000, making it an extraordinarily expensive intervention with limited tangible impact.
The Case for Targeted Interventions: Cost-Effectiveness and Impact
In contrast to these broad-based and costly measures, the Resolution Foundation advocates for targeted schemes that demonstrate significantly higher cost-effectiveness and a more direct impact on bringing young people into work. The report champions initiatives such as the Youth Jobs Grant and the Youth Jobs Guarantee as pathways to genuinely tackle the NEET crisis.
The Youth Jobs Grant, which commenced this week, offers firms £3,000 to hire an 18 to 24-year-old who has been receiving Universal Credit for six months or more. The report estimates that this scheme will create an additional 2,800 jobs, with a public cost of approximately £36,700 per additional job. This targeted approach focuses on supporting those who have faced sustained periods of unemployment, directly incentivising employers to offer opportunities to a demographic most in need of intervention.
The Youth Jobs Guarantee is another key recommendation, designed to fund six months of part-time employment for individuals who have been out of work for at least 18 months. This scheme is estimated to cost £38,000 per additional job, making it three-and-a-half times cheaper than the option of scrapping employer NICs. Together, the report projects that these two targeted schemes could bring an additional 37,000 young people into work, demonstrating a far more efficient allocation of public funds compared to the proposed tax cuts. The efficacy of these programs lies in their direct link to employment outcomes for specific groups, rather than relying on the trickle-down effect of general economic incentives.
Reforming the Apprenticeship Levy for Youth
Beyond direct employment subsidies, the report also calls for a critical reform of the Growth and Skills Levy, formerly known as the Apprenticeship Levy. The current structure, it notes, sees three-fifths of these apprenticeship places allocated to workers aged over 24. The Resolution Foundation argues that ringfencing this levy for workers aged 24 and under would dramatically enhance its impact on youth employment and skill development. Had this reform been implemented last year, for example, an estimated £1.55 billion would have been freed up. This substantial sum could have funded 145,000 young apprenticeships and provided an additional incentive of £2,000 to firms taking on these young apprentices.
The apprenticeship levy, introduced in 2017, aimed to fund apprenticeship training, but it has faced criticism for not adequately supporting entry-level positions for young people. Many businesses, particularly larger ones, have found it challenging to utilise their levy funds, leading to significant underspending or redirection towards higher-level training for existing, older employees. By refocusing the levy on younger individuals, the report suggests, the UK could better address skills gaps among its youth, provide structured pathways into various industries, and ensure that a vital funding mechanism serves its intended purpose of fostering a skilled future workforce.
Expert Reactions and Calls to Action
Lindsay Judge, Research Director at the Resolution Foundation, articulated the urgency of the situation: "The Neet milestone of a million was sobering, and could mean lasting damage to the life chances of a generation. But reaching for employer tax cuts to resolve this doesn’t add up. 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." Her statement underscores the report’s core message: effective solutions require strategic, evidence-based investment rather than politically appealing but ultimately less impactful broad measures.
Shazia Ejaz, Director of Campaigns at the Recruitment and Employment Confederation (REC), largely concurred with the need for a nuanced approach. While acknowledging the importance of higher pay, Ejaz supported pausing increases in the national minimum wage for young people, citing concerns that "rapid increases are adding to sustained cost pressures, with labour costs crucially rising faster than demand and productivity." She highlighted that this "squeeze is already limiting hiring, investment and training, particularly in retail and hospitality, which have long offered a foot on the ladder to work for young people leaving school or university." The REC also advocated for a "moderation" of employer NICs to "remove one of the biggest barriers to hiring right now," especially as employers contend with the complexities of the Employment Rights Act. Ejaz further supported a "fresh look at the apprenticeship levy to ensure it serves people with a wide range of educational backgrounds," specifically making a strong case for directing more funding towards younger apprentices aged 16-24, while still recognising the value of higher-level apprenticeships in certain sectors. She emphasised the need for a better balance within the levy system to allow more non-university graduates to train, given pressures on limited funds.
Paul Nowak, General Secretary of the Trades Union Congress (TUC), welcomed the launch of the Youth Jobs Grant, stating that "along with the Jobs Guarantee, it will open up pathways into work for young people who have been struggling to get a job." However, Nowak stressed that "the scale of the crisis means the government must go further and faster." He called for "putting the turboboosters on the jobs guarantee scheme to ensure it’s more widely available and available sooner to those who need it," and reiterated the TUC’s stance that "while increased investment is essential, we must also ensure every apprenticeship offers a genuine opportunity to learn and earn." This sentiment reflects a broader consensus on the need for both quantity and quality in youth employment initiatives.
Broader Implications and the Path Forward
The Resolution Foundation’s report, "Take a chance on me," presents a compelling argument for a re-evaluation of current government policy and a strategic pivot towards more targeted and demonstrably effective interventions. The implications of its findings are far-reaching, influencing not only immediate budgetary decisions but also the long-term trajectory of the UK’s youth labour market and its overall economic health.
If the government adopts the report’s recommendations, it could signify a move away from market-driven, general incentives towards a more direct and interventionist approach to tackle structural unemployment among young people. This shift would likely involve increased public spending on specific employment programmes, potentially requiring a reallocation of resources from other areas or a commitment to greater investment in human capital. The success of such a strategy hinges on robust implementation, effective outreach to NEET populations, and continuous monitoring to ensure programs adapt to evolving labour market needs.
Conversely, a failure to heed these warnings and persist with less effective strategies risks exacerbating the NEET crisis. A generation scarred by early unemployment could lead to a permanent loss of skills, reduced lifetime earnings, increased demand on welfare services, and a persistent drag on national productivity. This would have significant intergenerational consequences, potentially widening the gap between those with opportunities and those left behind.
The report also highlights the complex interplay between wage policy and employment incentives. While higher minimum wages are crucial for living standards, their rapid increase, especially for younger workers, can create disincentives for employers in certain sectors. Finding the right balance—where wages provide a decent standard of living without unduly hindering entry-level job creation—remains a critical challenge for policymakers. The recommendation to pause minimum wage convergence until youth unemployment falls offers a pragmatic middle ground, seeking to protect both young workers’ earnings and their access to the labour market.
Ultimately, the challenge of the million-strong NEET population is not just an economic one; it is a societal imperative. Investing in young people’s employment, education, and training is an investment in the UK’s future, ensuring a skilled, productive, and engaged workforce capable of driving sustained economic growth and fostering a more equitable society. The Resolution Foundation’s report provides a clear roadmap, grounded in evidence and cost-benefit analysis, for navigating this critical juncture and turning the tide on youth unemployment.
