Financial support to subsidise the cost of hiring younger workers could be offered to businesses under plans being considered by ministers, The i Paper understands.
The idea is that it would get more young people off benefits and would cost the Government less in tax breaks than it would in welfare payments.
Tax incentives are already available for employees hiring under-21s and officials are now looking at proposals that could see a similar exemption to include those up to the age of 24. Employers already get national insurance relief for apprentices under the age of 25.
National Insurance Contribution (NIC) relief allows employers to be exempted from the levy for younger staff members earning under £50,000, or apprentices, to incentivise hiring.
The Treasury has announced it is extending the existing tax relief scheme for another year.
But proposals for widening the scheme to subsidise more workers are being considered under a government push to tackle rising levels of worklessness among younger people, sources have confirmed.
The Office for National Statistics (ONS) estimates there are nearly one million 16 to 24-year-olds who are not in education, employment, or training – known as Neets.
Work and Pensions Secretary Pat McFadden has said tackling the increase in the number of Neets since 2021 is his key priority.
McFadden is considering plans to restrict the availability of the universal credit health element, paid to those out of work due to sickness, for those under the age of 22.
The measure is part of a package of welfare reforms proposed to tackle economic inactivity among young people.
And the Government has already unveiled its “youth guarantee” policy in which ministers pledged to guarantee paid work or training for every young person who has been on Universal Credit for 18 months without being in education or employment.
Those who refuse to take up the placement without a legitimate reason for doing so face sanctions, including potentially losing their benefits.
The Institute for Fiscal Studies (IFS) has said that, for any such programme to be effective, ministers will need to ensure there is enough financial incentive for employers to take part.
Widening the scope of the NIC relief scheme – or introducing a wage subsidy policy – would help to incentivise firms to hire younger people and keep them in employment long term.
One proposal, put forward by the Centre for Social Justice (CSJ) think tank, would see the introduction of a new “future workforce credit” policy for 16 to 24-year-olds.
The think tank has suggested the Government replace the current NIC relief scheme with the workforce credit which would see employers paid 30 per cent of a so-called Neets annual salary, half of this paid upfront and half after six months of continual employment.
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The think tank calculated the policy would cost £670m but bring £765m in additional tax revenues and welfare savings.
Under the CSJ suggestion, the “credit” would be worth £5,850 for a 19-year-old working full-time on minimum wage and to be eligible an employee must be under the age of 24 and not have been in education, employment or training for at least three months.
The CSJ estimated such a policy would increase the number of Neets moving into employment by 115,561 in its first year. This, the think tank said, would produce £765m in fiscal benefits through increased tax receipts – worth £409m – and welfare savings – worth £356m.
The calculation of the amount saved is based on the Government pressing ahead with its proposal to remove UC health element from under 22-year-olds.
Joe Shalam, policy director at the CSJ, said: “After a tough year British businesses and young people are crying out for a break. The CSJ’s plan would cut costs for bosses hiring workless youngsters, slash the welfare bill, and reduce our reliance on migrant labour.
“The Chancellor cannot leave one million jobless young people on the scrap heap if she is to stop taxes rising yet further. We are urging her to introduce a Future Workforce Credit this autumn to grow the economy and unlock the potential of a generation.”
A government spokesperson said: “We do not comment on speculation.
“Every young person should have the chance to thrive. That’s why we’ve put in place the September Guarantee, requiring local authorities to ensure all 16- and 17-year-olds receive an offer of a suitable place in education or training by the end of September each year.
“As part of our Youth Guarantee we’re also testing innovative new approaches through our trailblazer programmes, which have just received funding for another year. This will ensure that every young person has the opportunity to earn or learn, so no one is left behind under our Plan for Change.”
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