A senior warning from the Bank of England has brought renewed attention to the growing struggles faced by young workers in the UK. Chief economist Huw Pill that recent changes to employer taxes and minimum wage policy have had a “particularly acute” impact on youth employment, raising concerns about long-term consequences for the labour market.
Speaking before a parliamentary committee, Pill highlighted how the combined rise in National Insurance contributions and increases in minimum wages, especially for younger age groups, have made it harder for young people to secure jobs.
While these policies were introduced with broader economic and fairness goals, their short-term effects appear to be disproportionately affecting those entering the workforce for the first time.
The UK government, under Chancellor Rachel Reeves, raised employer National Insurance rates from 13.8 percent to 15 percent starting in April 2025.
At the same time, the earnings threshold at which employers begin paying these contributions was lowered. Alongside these tax changes, minimum wages were increased significantly, including a sharp rise for workers aged 18 to 20, as part of a broader effort to move toward wage equality across age groups.
While the intention behind equalising wages is to address fairness concerns, economists warn that higher wage floors combined with increased hiring costs may discourage employers from taking on less experienced workers.
Young people, who often lack work experience and require training, are typically the most vulnerable when hiring becomes more expensive.
Recent labour market data reflects this concern. Youth unemployment in the UK has risen to around 16 percent, surpassing the European Union average for the first time in years.
This marks one of the highest levels since the period following the global financial crisis. In contrast, overall UK unemployment stands significantly lower, indicating that the burden is falling unevenly across age groups.
Andrew Bailey, governor of the Bank of England, echoed these concerns, noting that youth unemployment has risen faster than the national average.
This divergence suggests structural challenges that go beyond normal economic cycles. However, the issue is not solely tied to recent policy changes.
Pill also pointed to deeper structural shifts in the labour market, many of which can be traced back to the aftermath of the COVID-19 pandemic.
Disruptions caused by the pandemic affected education, training opportunities, and early career pathways, leaving many young people without the foundational work experience needed to transition smoothly into employment.
Another alarming trend is the growing number of young people who are classified as economically inactive. Nearly one million individuals aged 16 to 24 are currently not in education, employment, or training.
This represents a sharp increase compared to pre-pandemic levels and suggests that a significant portion of the youth population is becoming disconnected from the labour market altogether. Experts warn that failing to address this issue could have long-term consequences.
Early career unemployment can lead to lasting effects on earnings, job stability, and overall productivity. Without timely intervention, today’s challenges could evolve into a generational economic setback.
Former cabinet minister Alan Milburn, who is leading a government review into youth unemployment, has described the situation as an “existential” risk. He argues that the UK may be witnessing a fundamental shift in how the labour market operates, one that requires urgent and targeted policy responses.
Looking ahead, policymakers may need to strike a careful balance between fair wages and job accessibility. While raising minimum wages supports living standards, ensuring that employers remain willing to hire young and inexperienced workers is equally critical. Some discussions are already underway about slowing the pace of wage increases for younger workers to ease pressure on hiring.
The warning from Huw Pill underscores a key economic tension. Policies designed to improve fairness and income security can sometimes create unintended barriers for those at the very start of their careers.
As the UK navigates these challenges, the focus will likely remain on finding solutions that protect both opportunity and equity in the labour market.
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