The national living wage currently stands at £12.71 an hour for workers aged 21 and over, while employees aged 18 to 20 must be paid at least £10.85 an hour. However, business rates and employment costs are preventing business owners from earning this wage, according to the Federation of Small Businesses (FSB).
FSB Warns of Unsustainable Costs
The FSB stated: “Employment costs – including the national living wage, employer National Insurance contributions and auto-enrolment – are making it increasingly difficult for small business owners to generate enough profit to pay themselves a living wage, let alone save for a pension. The result is fewer sustainable roles and fewer viable small firms.”
Institute of Directors Calls for Reconsideration
The Institute of Directors (IoD) has urged the Low Pay Commission to advise the Labour government to reconsider its manifesto pledge to equalise minimum wage rates across all age groups. They said: “If the Government wants to tackle the youth employment crisis, it must address the cost pressures associated with hiring young people.”
Resolution Foundation Analysis
However, the Resolution Foundation’s in-depth study found that cutting employers’ National Insurance contributions (NICs) and reducing the minimum wage for under-21s would do little to boost youth employment. The thinktank reported: “It has been argued that the 2024 changes to employer NICs put firms off hiring young people. But repealing them would have an underwhelming effect on youth employment – the vast majority of under-21s attract no employer NICs anyway.”
The report added: “Scrapping employer NICs for under-25s entirely would be very expensive – costing £5.1bn and creating just 38,000 additional jobs for young people – at a wasteful ratio of £132,000 per job.”
Impact of Minimum Wage Convergence
The analysis also examined calls to reverse the convergence of youth and adult minimum wage rates. It found that doing so would “have only a limited effect on employment – an additional 15,000 young people in work – while imposing a large cost on living standards, with the 230,000 16- to 20-year-olds that firms already pay the prevailing rate missing out on £379m a year between them.”
Apprenticeships Offer Better Value
The Resolution Foundation highlighted the economic case for apprenticeships: “Apprenticeships generate £13-£15 of public benefit per £1 spent for workers aged 19-24, compared with just £7 for those aged 24 and over. Furthermore, ringfencing the levy for under-25s last year would have freed up £1.55bn – enough to fund 145,000 young apprenticeships and provide the firms that take them on with an incentive of £2,000 each.”
Neet Numbers Soar
Lindsay Judge, the thinktank’s research director, said the increase in Neets (young people not in education, employment or training) to more than 1 million was “a sobering milestone”.
