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Labour has been urged to break a manifesto pledge to scrap youth rates of the minimum wage amid a dramatic rise in the number of young people out of work and education.
In a report sounding the alarm over a sharp increase in the number of 16- to 24-year-olds who are not in education, employment or training (Neet), the Resolution Foundation urged Labour to change course to avoid them being “priced out” of entry-level jobs.
It said the number of young people classified as Neet had risen by 195,000 over the past two years to reach 940,000 and the figure was poised to hit 1 million for the first time since 2012.
Labour promised before last year’s general election to scrap “discriminatory” lower minimum wage rates for under-21s, so that all adults would be entitled to the same legal pay floor.
The chancellor, Rachel Reeves, announced a phased approach in last year’s autumn budget, kickstarting the process to equalise the minimum wage with a bumper rise in the legal pay floor for 18- to 20-year-olds.
The rate for 18- to 20-year-olds was increased by 16.3% in April this year to reach £10 an hour, significantly above the 6.7% rise for those aged 21 and over, which now stands at £12.21 an hour.
However, the Resolution Foundation warned Reeves that combating unemployment among young adults would require her to stop short the process of equalising the minimum wage.
“Any increases in the rates would need to be especially cautiously considered in the current economic environment to prevent young people from being priced out of entry into the labour market,” it said.
Labour market experts have warned that the UK is facing a growing crisis in youth unemployment amid the stark increase in Neet levels since the height of the Covid pandemic.
Business leaders have also said Labour has sapped hiring activity after the chancellor’s £25bn increase in employer national insurance contributions in last year’s autumn budget, and complain that the rising minimum wage and changes to employment rights are driving up unemployment.
In analysis highlighting the scale of the challenge for young adults in the jobs market, the Resolution Foundation said rising levels of disability and ill health were fuelling the increase in the number of young people who are Neet.
The proportion of Neet young people who are inactive because of sickness or disability had more than doubled since 2005, with more than a quarter of 16- to 24-year-old Neets in this category.
In a report produced with the support of the Health Foundation thinktank, it said the reasons for being Neet had shifted notably in recent years.
It said two decades ago half of all young women who were Neet were out of employment because of family caring responsibilities. This has since fallen to just one-in-five. As a result, it said unemployment was now the single biggest reason for being Neet among men and women.
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Ministers are increasingly pushing to tackle a breakdown in the critical years between school and work, amid heightened concerns at the top of government over rising youth unemployment.
Reeves used her speech to the annual Labour conference in Liverpool last month to announce a new “youth guarantee”, offering every young person access to education or training to help them find work.
The government has also launched a series of “trailblazer” schemes in eight English mayoral authorities to help young adults to find work.
Louise Murphy, a senior economist at the Resolution Foundation, said the government needed to “redouble efforts” to reduce the number of Neets by making it easier for them to return to education, or to get their first experience of work.
“Otherwise, we a risk a cohort of young people slipping through the cracks into a lifetime of lower living standards,” she said.
A government spokesperson said: “By strengthening the national living and minimum wage for 3 million workers across all age bands, we aim to support business growth though reduced staff turnover and by helping to achieve higher productivity.”
