Labor is facing calls to reconsider its manifesto promise to end low minimum wage rates for young workers amid warnings that almost 1 million 16 to 24-year-olds are now out of education, employment or training.
A new report from the Resolution Foundation shows that the number of so-called “neats” has increased by 195,000 over the past two years, reaching 940,000 – the highest level in more than a decade and on track to exceed 1 million for the first time since 2012.
The thinktank argues that scrapping youth minimum wage levels could risk “costing” young people out of entry-level roles, at a time when employers are already reducing hiring due to rising labor costs.
Labour's election manifesto committed to ending what it described as “discriminatory” low pay bands for workers under the age of 21. The process began in April when Chancellor Rachel Reeves imposed a 16.3% increase in the minimum wage for 18 to 20-year-olds, taking it to £10 an hour – well above the 6.7% rise for workers aged 21 and over, now paid £12.21.
However, the Resolution Foundation warns that further convergence could force businesses to reduce hiring or prioritize older candidates with more experience, especially during times of economic uncertainty.
“Any increase in rates in the current economic climate will need to be considered particularly carefully to avoid disadvantaging young people from entering the labor market,” the report said.
The report also highlights changes in the reasons why young people are becoming NEET. Poor health and disability have become increasingly prominent factors, with over 25% of young NEETs now inactive due to illness – more than double the 2005 rate.
Unemployment, once driven by caregiving responsibilities, especially among young women, has now become the leading reason for youth of both genders to disengage from work or study.
Citing Reeves's £25bn increase in employer national insurance contributions, an increase in the minimum wage and expanded employment protection in last year's autumn budget, business groups have warned that recent policy changes have increased recruitment costs.
They argue that additional mandatory wage increases for young workers could reduce apprenticeships and traineeship opportunities at a time when employers are becoming more selective.
In response to growing concern over labor market outcomes, Reeves recently announced a new “Youth Guarantee” at the Labor Party conference in Liverpool, promising every young person access to education, skills training or employment support.
The Government is also running “trailblazer” employment schemes in eight English mayoral regions to better connect young people to work and training.
Lewis Murphy, senior economist at the Resolution Foundation, said stronger intervention was urgently needed:
“Otherwise, we risk a group of young people being stuck in a lifetime of low living standards.”
A government spokesperson defended its policy direction, saying: “By strengthening the national standard of living and the minimum wage for 3 million workers of all age groups, we aim to support business growth through lower staff turnover and higher productivity.”
With young people alienated and employers warning of cost pressures, Labor faces a policy crossroads: press ahead with full pay equality, risk job losses – or reevaluate its approach to ensure pay rises are matched by expanded entry-level opportunities.
The balance it creates could shape the youth labor market for a generation.
