Baroness Jacqui Smith, the skills minister, has stated that the Labour government's £25bn increase in taxes paid by employers is not the main cause of rising youth unemployment. Speaking to City AM, Baroness Smith said that changes in National Insurance Contributions (NICs) and minimum wages have not been the primary drivers behind the increase in unemployment rates for individuals under the age of 25.
Baroness Smith argued that youth unemployment has been "largely stable" since Labour was elected, contrasting it with a rise observed between 2022 and 2024 under the previous Conservative government. She added that the significant increase in youth unemployment occurred before Labour took office.
The youth unemployment rate for those aged between 16 and 24 stood at 16.4 per cent in the three months to July. This rate has increased from 14.6 per cent under the current Labour government. In 2022, the youth unemployment rate was approximately 10 per cent.
The government has announced measures to support youth employment, including £2,000 for small businesses for every young person hired as an apprentice. A new government page will also connect businesses with young people seeking apprenticeship opportunities. Labour ministers have committed to providing 50,000 additional youth apprenticeships over the next two years.
Business groups, including the British Chambers of Commerce and the Confederation of British Industry, have indicated that efforts to align the minimum wage for young people with that of older workers have discouraged employers from hiring less experienced staff. The National Institute of Economic and Social Research estimated in early 2026 that the cost of hiring graduates increased by seven per cent due to higher employer taxes and changes to the national minimum wage.
A cross-party committee of MPs has urged the government to reduce employers' NICs for all new workers under 25, citing business evidence that rising labour costs, partly driven by new taxes, have reduced job opportunities. Currently, employers are exempt from paying tax on workers' salaries for those under 21. The Conservatives have pledged to halve the NICs rate from 15 per cent to 7.5 per cent for firms hiring young people aged 21 to 24.