UK youth unemployment surge sparks tax and wage debate

Published: 25 February 2026. The English Chronicle Desk. The English Chronicle Online.

UK youth unemployment has climbed sharply, raising serious concerns across Westminster and the City. Fresh warnings from the Bank of England suggest recent tax and wage reforms are worsening the situation. The Bank’s chief economist, Huw Pill, told MPs that the combined rise in employers’ national insurance and minimum wages has hit young workers hardest. His remarks have intensified debate over the government’s economic strategy as unemployment among 16 to 24-year-olds reaches levels not seen in more than a decade.

Official figures released last week show youth unemployment standing at 16.1 percent in the final quarter of 2025. This marks the highest rate since 2014, a period when the labour market was still healing from the global financial crisis. It is also the first time the UK’s youth unemployment rate has exceeded the European Union average in recent years. By contrast, overall UK unemployment has risen to 5.2 percent, a five-year high but far below the rate faced by young jobseekers.

Appearing before the Treasury Select Committee, Pill described the impact on younger workers as particularly acute. He pointed directly to the increase in employers’ national insurance contributions and the government’s drive to equalise the national living wage. Both measures, he argued, have increased hiring costs at a sensitive time for the labour market. While these policies were designed to support incomes and strengthen public finances, they may be creating unintended barriers for those seeking their first job.

The changes stem from the first Budget delivered by Chancellor Rachel Reeves after Labour returned to power in 2024. Employers’ national insurance contributions rose from 13.8 percent to 15 percent from April last year. At the same time, the earnings threshold at which contributions begin was lowered significantly. Businesses employing workers aged 21 or over now start paying contributions from a much lower salary level than before.

Alongside these tax measures, minimum wages have increased markedly. Pay for workers aged 21 and over rose by 6.7 percent in April 2025. For those aged between 18 and 20, the increase was an even sharper 16.3 percent. Another rise is scheduled for this year as ministers move towards their manifesto pledge to equalise wage rates across age groups. The principle behind the reform was fairness, with Labour arguing that younger workers should not be paid less solely because of their age.

However, critics warn that equalising wages during a fragile economic recovery carries risks. Employers facing higher payroll taxes and wage bills may scale back recruitment. For experienced workers, firms might absorb these costs more easily. For young applicants without work history, the calculation can look different. Businesses may delay hiring or reduce entry-level roles if margins are squeezed.

The Governor of the Bank of England, Andrew Bailey, echoed these concerns during the same committee hearing. He noted that the youth unemployment rate has risen more rapidly than overall joblessness. While acknowledging broader economic pressures, Bailey highlighted the disproportionate effect on younger people entering the workforce. His comments underline the seriousness with which the central bank views the issue.

The data does not capture the full picture. Youth unemployment figures exclude those classified as economically inactive. This group includes young people not actively seeking work or not immediately available to start employment. Nearly one million young people now fall into the category of not being in education, employment or training. That represents a 26 percent increase compared with levels before the pandemic.

Economists point to several structural factors beyond tax and wage changes. Pill stressed that deeper shifts in the labour market are also at play. The long shadow of the Covid pandemic continues to affect young people’s prospects. Many missed out on early work experience during lockdowns. Apprenticeships and part-time roles were disrupted at a critical stage in their development.

Starting a first job often shapes long-term earnings and career stability. Research consistently shows that delayed entry into employment can have lasting consequences. Lower initial wages and weaker attachment to the labour market may persist for years. Pill warned that these scarring effects could intersect with health and mental health challenges among young people. Such issues compound the difficulty of securing and retaining employment.

The government has acknowledged the gravity of the situation. Former health secretary Alan Milburn is leading a review into youth unemployment and economic inactivity. His report is expected later this summer. Milburn has described the trend as posing an existential risk to the country’s future prosperity. In recent interviews, he warned that Britain risks placing a generation on the scrapheap if urgent action is not taken.

Ministers are reportedly considering whether to slow the pace of minimum wage increases for younger workers. Such a move would represent a partial retreat from the original commitment to rapid equalisation. Supporters argue it could ease pressure on employers and encourage recruitment. Opponents fear it would undermine efforts to address pay inequality and living standards for young adults.

Business groups have reacted cautiously to the Bank’s intervention. Some employers say rising costs have forced difficult decisions about staffing levels. Small and medium-sized enterprises, in particular, face tighter margins and limited flexibility. Others insist that strong consumer demand and improved productivity could offset higher wage bills over time. The debate reflects wider uncertainty about the direction of the UK economy.

For young people themselves, the impact is immediate and personal. Many report sending dozens of applications without success. Others accept temporary or insecure roles below their qualifications. Graduates face fierce competition for entry-level positions, while school leavers struggle to access apprenticeships. The promise of fairer pay rings hollow if opportunities shrink.

At the same time, some analysts caution against attributing all of the rise in UK youth unemployment to recent policy changes. Global economic headwinds, including slower growth in key trading partners, have dampened hiring across sectors. Technological change is also reshaping entry-level work. Automation and digital platforms reduce demand for certain roles traditionally filled by younger workers.

Yet the timing of the increase has sharpened political scrutiny. With a general election expected within the next few years, youth unemployment is likely to feature prominently in public debate. The government faces the delicate task of balancing fiscal responsibility with labour market resilience. Central bank officials, while independent, have made clear that employment trends will influence monetary policy assessments.

For now, the figures present a stark warning. UK youth unemployment at over 16 percent signals strain beneath headline economic indicators. While overall joblessness remains relatively contained, the divide between generations is widening. Policymakers must weigh whether recent reforms require adjustment or whether patience is needed for benefits to materialise.

The coming months will be crucial. Milburn’s review may recommend targeted interventions, such as expanded apprenticeships or tailored employment support. The Treasury could reassess the pace of tax and wage reforms. The Bank of England will continue monitoring data closely as it calibrates interest rates and forecasts.

What remains clear is that the cost of inaction could be high. A prolonged period of elevated UK youth unemployment risks long-term social and economic damage. Lost earnings, reduced productivity, and weakened confidence among young adults would weigh heavily on future growth. Ensuring that the next generation can access meaningful work is not only a moral imperative but also an economic necessity.

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