Young bearing the brunt of UK tax and wage changes, says BoE economist

The negative effect of a combined increase in employers’ taxes and minimum wages has been “particularly acute” for young people, the Bank of England’s chief economist has warned.Huw Pill said on Tuesday that the increase in national insurance contributions (NICs) from April last year and the government’s efforts to equalise the “national living wage” had caused a particular problem for young people trying to find jobs.Official figures released last week showed that unemployment among 16- to 24-year-olds is higher than the EU average for the first time, rising to 16.1% in the final three months of 2025. This is the highest level, including the pandemic, since 2014, when the jobs market was still recovering from the financial crisis.Unemployment for the UK as a whole rose to a five-year high of 5.2%, according to figures released last week, but Pill, who was appearing before a Treasury Select Committee of MPs, said he was particularly concerned about unemployment for young people.“The changes around the ‘national living wage’ and the changes to NICs – both of those have had a particular effect on young people,” he said, later reiterating that it was “particularly acute”.Andrew Bailey, governor of the Bank of England, who appeared alongside Pill at the committee hearing, said: “The youth unemployment rate is around 16% now. That is high, it’s gone up more rapidly than the overall level.”In her first budget after Labour returned to power in 2024, the chancellor, Rachel Reeves, increased the rate of employers’ national insurance contributions from 13.8% to 15% from last April. The earnings threshold at which NICs is charged for workers aged 21 or over was also cut from £9,100 to £5,000 a year.At the same time, the minimum wage for those aged 21 and over rose by 6.7% and by 16.3% for 18- to 20-year-olds in April 2025, and will rise again this year. Labour had promised in its manifesto to equalise national minimum wage rates by the time of the next election, saying it was unfair younger workers were paid less. However, ministers are now considering a slower rise in the minimum wage for younger workers, amid fears over rising youth unemployment.The youth unemployment figures do not include young people who are “economically inactive”, meaning they are not actively looking for work or available to start a job. Just under a million young people are not in education, employment or training, a 26% increase from pre-pandemic levels.Pill added that there were “deeper structural changes” occurring in the labour market and one of the reasons young people are struggling to find jobs may also be a result of the Covid pandemic.“There are these issues about the long-lasting effects of Covid,” he said. “Having your first job is an important part of being able to enter the labour market and be productive – the more difficult that is, [the more that] can have very long-lasting effects, and they do cross with things like health issues and mental health issues and so forth.”Alan Milburn, a former health secretary, is chairing a government review into the causes of youth unemployment and inactivity and is due to report this summer. He said last week that the rise in youth unemployment posed an “existential” risk for the UK and could put “a generation on the scrapheap”. “This is not a short-term phenomenon, it’s a long-term one,” Milburn told the BBC. “We’re seeing something dramatic changing in the labour markets.”