Rachel Reeves has acknowledged a “valid argument” against her decision to increase employers’ national insurance contributions, particularly as youth unemployment approaches one million.
However, the Chancellor maintained that the 2024 policy was essential for channelling funds into vital public services.
Appearing before Parliament’s Treasury Committee on Wednesday, Ms Reeves explained: “We did make the decision to increase national insurance in my first budget and that’s because we needed to properly fund public services, including the National Health Service, which got a £29 billion-a-year uplift.
“So, I do recognise, and it’s a valid argument to say that that should not have happened. But if that didn’t happen, we wouldn’t have been able to put the money into the NHS and reduce waiting lists.
“And reducing waiting lists in the NHS is also good for business, because it means that more people are available for work, and the workforce is is healthier.
“But I do recognise there are particular issues around youth unemployment.
“A lot of that, with respect, we inherited with a big increase in the young people not in education, employment or training, but we are facing into that with actions coming on stream from next month.”
The Chancellor said the Government was expanding apprenticeship opportunities for young people and pointed to her “youth guarantee”, committing to offer guaranteed paid work for every eligible young person who has been out of education or work for 18 months.
The number of young people not in employment, education or training increased in the final months of last year and edged closer to one million, according to official figures last month.
The Office for National Statistics (ONS) said the number of so-called Neets aged 16 to 24 was reported at 957,000 in the three months from October to December – an increase from 946,000 in the previous quarter.
Separate figures from the ONS earlier in February showed the overall unemployment rate for Britons rose to 5.2 per cent for the three months to November.
It came as business groups told a separate parliamentary select committee that higher employment costs were hampering firms’ abilities to hire young people.
Kate Shoesmith, director of policy at the British Chambers of Commerce told the work and pensions committee: “When NI changes hit in April, 13 per cent of our businesses said they made redundancies as a direct result of that.
“One particular mid-sized professional services firm said that the cost to them was £167,000 on their wage bill.
“When they were thinking about training and progression routes, bringing young people into the jobs market, into their businesses, they would have to pause some of those activities.”
Other trade industry bosses highlighted that the cost of part-time roles has disproportionately increased, contributing to reduced employment opportunities to young people.
Kate Nicholls, chairwoman of UK Hospitality, said: “In the last two years you’ve had changes, particularly changes in the Nics threshold that brought in just under a million people in hospitality for the first time.
“And because we disproportionately skew towards young people, that disproportionately impacts those first jobs, entry level jobs for 16-24 year olds.
“Those workers tend to need to work or want to work part-time, and those are the jobs where the tax rate has increased by 75%.”
