Chancellor Reeves Defends National Insurance Increase Despite Youth Unemployment Concerns
Chancellor Rachel Reeves has conceded there is a "valid argument" that she should not have increased employers' national insurance contributions, as official figures reveal the number of jobless young people is edging closer to one million. However, she has firmly defended the controversial policy, insisting the move announced in 2024 was essential to inject vital funds into public services.
Funding Public Services Versus Employment Costs
Appearing before Parliament's Treasury Committee, Ms Reeves stated: "We did make the decision to increase national insurance in my first budget and that's because we needed to properly fund public services, including the National Health Service, which got a £29 billion-a-year uplift."
"So, I do recognise, and it's a valid argument to say that that should not have happened. But if that didn't happen, we wouldn't have been able to put the money into the NHS and reduce waiting lists."
The Chancellor argued that reducing NHS waiting lists is also beneficial for business, as it means more people are available for work and the workforce is healthier. However, she acknowledged specific issues surrounding youth unemployment, noting that the government inherited a significant increase in young people not in education, employment, or training.
Youth Unemployment Figures and Government Response
According to the Office for National Statistics, the number of so-called Neets aged 16 to 24 reached 957,000 in the final quarter of last year, up from 946,000 in the previous three-month period. This troubling trend brings the total perilously close to the one million mark.
Separate ONS data from earlier in February showed the overall UK unemployment rate rose to 5.2% for the three months to November. In response, Ms Reeves highlighted the government's expansion of apprenticeship opportunities and her "youth guarantee" policy, which commits to offering guaranteed paid work for every eligible young person out of education or work for 18 months.
Business Groups Voice Concerns Over Hiring Impact
Business representatives have warned that higher employment costs are severely hampering firms' abilities to hire young people. Kate Shoesmith, director of policy at the British Chambers of Commerce, told the work and pensions committee that 13% of businesses made redundancies directly as a result of the NI changes in April.
"One particular mid-sized professional services firm said that the cost to them was £167,000 on their wage bill," she explained. "When they were thinking about training and progression routes, bringing young people into the jobs market, into their businesses, they would have to pause some of those activities."
Disproportionate Impact on Part-Time and Entry-Level Roles
Other industry leaders emphasised that the cost of part-time roles has increased disproportionately, further reducing employment opportunities for young people. Kate Nicholls, chairwoman of UK Hospitality, noted that changes in the NI thresholds brought nearly a million hospitality workers into the tax system for the first time.
"And because we disproportionately skew towards young people, that disproportionately impacts those first jobs, entry level jobs for 16-24 year olds," she said. "Those workers tend to need to work or want to work part-time, and those are the jobs where the tax rate has increased by 75%."
The Chancellor maintains that while the national insurance hike presents challenges, it was a necessary step to secure funding for essential public services, with a focus on alleviating pressure on the NHS and ultimately supporting a healthier, more productive workforce.
