Tackling cost of doing business key to solving youth employment crisis

Britain's youth unemployment crisis is the symptom of a wider cost of doing business problem. The CBI's youth employment report, Opportunity in Every Postcode: Ensuring Young People Have Options, Wherever They Live, shows that growth is needed to move the dial for more than a million young people not in education, employment or training (NEET).

The report sets out a practical route to changing business behaviour from cost and caution to investment and opportunity, enabling employers across the country to create more jobs, apprenticeships and work experience opportunities for young people.

The CBI is clear that youth employment sits within a much wider system spanning health, welfare, education and other areas of government policy. This report focuses on the role of business and how government action can help employers create jobs and deliver quality training and support for young people.

The CBI calls on the government to:

• Cut employers' NICs, using the period before the Autumn Budget to design this cut for maximum impact.
• Protect young people's jobs by adopting a 52-week reference period and a low-hours threshold of no more than eight hours in rules on guaranteed hours.
• Work with employers, training providers and devolved authorities to establish a common framework for skills devolution that protects opportunities for young people.
• Change the tax treatment of business investment in health and wellbeing services so firms are better positioned to support young people experiencing health-related barriers to work.

Businesses are facing a perfect storm of rising costs that is making it harder to create the jobs, apprenticeships and work experience opportunities young people rely on to enter the labour market. Employers told the CBI that higher National Insurance Contributions, increases to the National Living Wage, new costs associated with the Employment Rights Act, and wider pressures from energy bills, taxation and borrowing costs are all squeezing recruitment and investment budgets.

With labour costs now viewed by businesses as the single biggest threat to labour market competitiveness, many firms are being forced to prioritise managing immediate cost pressures over expanding their workforce. The result is fewer entry-level opportunities and tougher competition for young people looking to take their first step into work.

While the scale of the youth employment challenge should not be underestimated, this report is clear that the UK's skills and employability system is not fundamentally broken. Across the country, employers, colleges, universities and training providers are already delivering successful programmes that help young people gain skills, confidence and routes into work.

Rain Newton-Smith, Chief Executive, CBI said:

"The Prime Minister has made solving the youth employment crisis one of the defining challenges of his government, and rightly so. This is not just an economic challenge; it is a social and moral imperative. Young people have a tremendous amount to offer, yet too many are locked out of the labour market and denied the opportunities they deserve.

"The consequences of this tragic waste of potential are deeply personal, but they also go beyond the individual; when young people lose out, so do businesses, government and the wider economy. Without a coherent plan to tackle youth unemployment, we risk weakening the social contract that binds firms, workers and communities together. The stakes are high, and we cannot afford to fail.

"The same challenges that are holding back growth are hurting young people and their ability to enter the labour market. For it to work, growth must be at the heart of the youth employment strategy. Treating them as two separate challenges and assuming that businesses can deliver opportunities without growth will result in more young people falling outside of the labour market. When young people's potential is wasted, we all lose."

Recommended Policy Actions

Cut Employers' National Insurance Contributions (NICs)

• Reduce the cost of creating jobs and give businesses greater headroom to recruit, invest and expand.
• Help offset the impact of rising employment costs, which businesses say are constraining recruitment, training and investment.
• Use the period before the Autumn Budget to work with business on designing a NICs cut that delivers the greatest impact for employment and growth. Businesses say that cutting the rate or raising the threshold would have a bigger impact on hiring than expanding age-based exemptions to all under-25s.

Ensure Guaranteed Hours Rules Under the Employment Rights Act Protect Youth Opportunities

• Young people will be disproportionately affected if guaranteed hours rules make it more expensive to offer flexibility around education commitments.
• Adopt a 52-week reference period for guaranteed hours contracts to ensure contract hours are sustainable and not distorted by seasonal peaks.
• Set the low-hours threshold at no more than eight hours per week to target support at those who need it most while minimising unintended consequences.
• Re-establish tripartite dialogue between government, business and trade unions to agree a workable implementation of the Employment Rights Act.

Make a Success of Skills Devolution

• Work with employers, training providers and devolved authorities to establish a common framework for skills devolution.
• Ringfence skills funding and provide greater certainty through multi-year funding settlements.
• Combine local flexibility with national consistency so young people can access high-quality opportunities regardless of where they live.

Remove Barriers to Business Investment in Workforce Health and Wellbeing

• Reform the tax system to remove disincentives to employer investment in health, wellbeing and employability support.
• Make Employee Assistance Programmes (EAPs) fully tax-free.
• Remove the 28-day wait and £500 cap for recommended medical treatment tax relief, enabling earlier intervention.

From large-scale work experience schemes at McDonald's to targeted apprenticeship programmes at Tesco and supported internships delivered by employers such as Amazon and TfL, the report details case studies demonstrating partnerships that are changing lives and opening doors. Policymakers must build on these successes while being careful not to disrupt proven models that are already helping young people.

As Alan Milburn's interim report recognises, improving outcomes will require action across multiple systems, with his final recommendations expected to set out the wider reforms needed to help every young person fulfil their potential.

Exhibit 1: Advantages and Disadvantages of Different NICs Reduction Approaches

Notes

1. CBI modelling estimates that increasing the employer NIC threshold to £6,000 would cost approximately £3.6-£3.9 billion annually.
2. CBI modelling estimates that reducing the employer NIC rate to 14% would cost approximately £9.3-£9.8 billion annually.
3. Resolution Foundation estimates that extending the existing employer NIC exemption to all employees under 25 would reduce Exchequer receipts by around £5 billion per year.