Labour is making it more expensive than ever to hire young workers
Increases to the minimum wage alongside increases in employer NICs have pushed up the costs of employing an 18-year-old by 26 per cent. No wonder youth unemployment is soaring and young people are emigrating in droves, says Emma Revell
To say most people are struggling with the state of the British economy would be an understatement – but for the younger generations the impact of nigh-on three decades of stagnation is particularly acute.
They cannot truly reckon with the fact that real wages used to actually rise. Ditto living standards. The last time that happened in a truly sustained way was before they were born.
And did the Budget give them any cause to hope things might get better? Of course not.
It raised taxes to a post-war high, which their generation and the ones that follow will be paying their entire lives. The freeze on income tax thresholds, which began under the previous Conservative government, is now the single largest tax rise in postwar history – quite possibly in all of British history. That is in addition to new burdens placed on landlords which will push up rents and swathes of anti-growth measures which are likely to ensure things stay just as bad for the foreseeable future.
One of the measures plucked out of Rachel Reeves’ red box has a direct and disproportionate impact on our youngest workers though.
Analysis by my colleagues at the Centre for Policy Studies after Reeves’ first Budget calculated that increases to minimum wages, combined with increases in employers’ National Insurance and lowering the threshold at which it was paid, meant 2025 would be the most expensive year on record for businesses employing those on the minimum wage.
The increases to the National Living Wage, National Minimum Wage and Apprenticeship wages announced in Reeves’ second Budget sound great – after all, who doesn’t want higher wages, especially for those at the lower end of the spectrum? But if the impact of those increases is to make lower wage workers less attractive to employers, employers will simply hire fewer of them. Youth unemployment currently stands at 15.3 per cent, well above the general rate of five per cent.
From April 2026, it will cost a business £25,852 annually to hire a full-time, minimum-wage worker aged 21, up from £24,806 in 2025 and £22,438 in 2024. This is a 15 per cent increase since 2024, or £3,414
From April 2026, it will cost a business £25,852 annually to hire a full-time, minimum-wage worker aged 21, up from £24,806 in 2025 and £22,438 in 2024. This is a 15 per cent increase since 2024, or £3,414.
However, the increase has been even larger for 18- to 20-year-olds and apprentices. For someone aged 18-20 working full-time on the minimum wage, the cost has increased from £15,652 in 2024 to £18,200 in 2025 to £19,747 in 2026. This is a two-year increase of 26 per cent, or £4,095.
Even worse, much of this increase in cost is going not to the workers but to the government. Those aged 21 and over will keep just half of the increase in labour costs via the higher minimum wage: the rest is taken in taxes.
Social mobility?
Young workers – who traditionally offer businesses a more affordable route to building skills and pipelines of future talent – or those getting into to work at the lower end of the pay scale, perhaps after a period of economic inactivity, are therefore becoming comparatively more expensive. If employing a 19-year-old costs only marginally less than hiring a 23-year-old, many firms will simply hire the older, more experienced worker. The consequence is fewer entry-level roles, fewer opportunities for social mobility and a narrowing pathway into the workforce for those who need it most.
None of this is an argument against higher wages. Britain does need better-paid, more productive work. But raising pay by political decree, without tackling the underlying productivity problem, is like raising the thermostat in a draughty house: comfortable for a moment, costly soon after, and entirely ineffective in fixing the underlying issue.
But it’s not just workers (or rather would-be workers) at the bottom end of the payscale whose economic prospects are far from rosy in interventionist, high-tax, high-spend Britain. New data seems to confirm what everyone has known for a while – young people, many of whom will be higher earners, are now leaving the country in droves.
Just weeks after the Office for National Statistics announced they had been massively undercounting the number of Brits leaving the country – revising figures for 2021-2024 up from 343,000 to an astonishing 992,000 – their most recent data release had British nationals leaving the country broken down by age band for the first time. In the year to June 2025, 87,000 16- to 24-year-olds waved Britain goodbye, accompanied by another 87,000 25- to 34-year-olds.
Britain’s brain drain is only in part driven by the difficulties in finding a job – housing costs, the environment for entrepreneurs, even the weather are all factors pushing Brits abroad. But the least you’d expect the government to do is not make things much, much worse.
Emma Revell is external affairs director of the Centre for Policy Studies