Labour’s tax on business will cost young workers the most
Labour’s bid to improve workers’ rights will end up costing the young and inexperienced the most, writes Elliot Keck, head of campaigns at the Taxpayers’ Alliance
Well over 2.5m people have now called for another general election on parliament’s official petitions website. They will get their wish, of course. After all, there is no date specified on the petition and, say what you want about Starmer, he is certainly not about to declare a dictatorship.
Let’s assume for a moment that Kemi Badenoch pulls off one of the most spectacular electoral victories in British history. What are the issues she is likely to face? So far she has been cautious in making promises on policy, rightly pointing out that, until she knows the problems she will be facing, and the context in which she will be facing them, why provide specific solutions now?
Facing youth unemployment
Well if there is one problem that she should bet her money on facing, it’s that of persistently high numbers of young people not in work or education. It won’t be for a lack of announcements, press releases or broadcast interviews from the current crop of Labour ministers. Liz Kendall, the work and pensions secretary, has announced a plan to “get Britain working again”, with a focus on young people. Her set list is full of classics – there is a “youth guarantee”, a promise to make job centres “fit for purpose”, additional money for mental health treatment and, for the encore, a warning that young people who repeatedly refuse offers of work or training will lose their benefits.
There’s rightly a lot of scepticism about the proposals. When you dive into the detail, it becomes clear that the focus right now is on the extra spending, the extra support. All carrot, with the stick delayed until a later, unspecified date.
But that’s not why Liz Kendall is doomed to fail. She will fail because her colleagues have launched an almighty assault on businesses – the likes of which the country hasn’t seen for decades. And it will be young people who are the collateral.
Labour’s assault on business
The assault has three main prongs. Firstly, the hike in national insurance contributions for employers. The damage this causes will be broad of course. Any firm thinking about promotions, pay rises, bonuses or new hires will be put off by the increased cost. But a tightening of the labour market as a result of a reduction in new hires will hit younger people particularly hard. Older employees already in jobs may find promotions or pay rises out of reach, but at least they will be in work.
Then there are the changes to the national minimum wage. The impact of these will be particularly pernicious, even if the intention is well meaning. For an 18- to 20-year-old, the national minimum wage will be £10 from April 2025, up from £8.60, an almost 17 per cent increase. Compare that to 2018-19, when the minimum wage for the same age group was £5.90. That’s an increase of almost 70 per cent, against a backdrop of an economy that has seen tepid growth. The national living wage for those over 21 (or over 25 in the case of 2018 when there was a separate band for 21- to 24-year-olds) has also soared, but the gap between the two proportionally has shrunk. A 25-year-old now only needs to be paid 22 per cent more than an 18-year-old. Six years ago there was a 33 per cent gap. Why take the risk of an 18-year-old with little to no work experience when you can hire someone in their mid-20s for relatively little more?
And hiring a young person simply is risky. Ministers should be seeking ways to reduce that risk for employers. Instead they are further compounding it through the proposals in the employment rights bill, which will introduce “day one rights” for employees. Currently, protections against unfair dismissal only kick in after two years of employment. That protection is now set to come in on the first day, only tempered by a probationary period which the government is currently placing at nine months, subject to a consultation. This will inevitably lead to a preference for internal hires or promotions rather than bringing in someone new. But more significantly, it will lead to a preference for experience. CVs can always be embellished, or exaggerated (just ask the Chancellor). References may be massaged. But even an embellished CV is better proof of an employee’s capability to work than no meaningful CV at all. And which part of the population lacks meaningful CVs?
Hiring a young person is about to become more expensive and more risky, and particularly so relative to older, more experienced people.
To be clear, this isn’t a mess of Labour’s making. It’s a mess caused by the pandemic, the growth of university degrees with no employment prospects, the over-medicalisation of mental health conditions, the economic uncertainty, high marginal tax rates and unaffordable rental market. Many of these problems can be laid directly at the last government’s feet. But if it’s not a mess of Labour’s making, it’s a mess they are set to make far, far worse.