The £3.25bn question: Can Badenoch’s National Insurance cut tackle youth unemployment?

Kemi Badenoch’s proposal to halve employers’ National Insurance for workers aged 21–24 is a bold attempt to tackle the most worrying feature of Britain’s labour market: rising youth unemployment.

Around 2.1–2.3 million employees are in the 21–24 age bracket.

If the Tories were to be elected and implement this policy, employers would see the National Insurance rate on these workers cut from 15% to 7.5%, saving an estimated £1,545 per employee on average.

There is an obvious economic case to support this proposal. Official figures report that over 16% of 16–24-year-olds are now unemployed.

Not only is this unproductive use of the nation’s labour supply, but extended periods outside employment or education at a young age can have damaging long-term effects. The longer you are out of work, the more unemployable you become. This leads to slower career progression, lower lifetime earnings, and greater exposure to insecure employment.

Youth unemployment sits at nearly three times the national unemployment rate and is at its highest level for over a decade. Cutting the cost for employers of hiring younger workers should stimulate recruitment, especially in labour-intensive sectors like hospitality and retail which are reliant on young people in entry-level roles.

There is, however, a significant fiscal price for this policy. The cost could be around £3.25 billion a year, although the Conservatives estimate that this would fall to £2.3 billion by 2029–30 after factoring in additional income-tax receipts and savings on Universal Credit.

The current direction of travel is clearly unsustainable, and Badenoch is right to commit to radical action to change this. But if implemented, this policy will have a sizeable fiscal trade-off attached to it: some tax revenue will be sacrificed in the early stages with the expectation that it will generate employment, reduce welfare dependency and avoid the damaging long-term economic consequences of youth unemployment. That’s an admirable goal, but can the country afford it right now?