Chancellor John Healey is drawing up measures to slash the cost of hiring under-25-year-olds at the Budget, understands, as the government looks to tackle the crisis of youth unemployment and ease pressures facing businesses.

A move to tackle the number of young people not in employment, education or training (Neets) by reducing hiring costs is likely to feature in Healey’s statement on 28 October, sources told .

Options could include extending reliefs on employers’ National Insurance contributions or offering a tax holiday to companies for a period of time after hiring a young person. Employers do not need to pay NICs on hires under the age of 21. 

Should Healey announce the plans in the Budget, the move would precede the full completion of Alan Milburn’s review into the Neets crisis, which is expected to provide a list of recommendations on reforming the welfare system and encouraging young people to take up jobs. 

Business chiefs have called on Healey to tackle the cost of business in order to reverse a rise in youth unemployment since the pandemic. The Confederation of British Industry and other leading industry groups have suggested that a reduction in NICs would offer businesses an incentive to recruit more young people. 

Healey’s offer to businesses

At a business summit on Tuesday morning between top ministers and chief executives from the likes of Sainsbury’s and Lloyds Bank, Healey and Burnham focused discussions on reducing the number of young people out of work, sources told . 

Youth unemployment in the middle of this year hit an 11-year-high while the number of Neets crossed the 1m mark before falling back. 

Any tax cut or new subsidy announcement would come under intense scrutiny amid calls from the International Monetary Fund and other leading economists for the government to rein in spending and narrow the deficit. 

For example, an extension of NICs relief to all under-25-year-olds would cost about £5bn a year, according to the Resolution Foundation. 

Other analysts have said that Healey could benefit from a huge windfall if he manages to lower unemployment and reduce the number of young people claiming benefits. 

An interim report published before Milburn’s full review said the cumulative annual cost of the Neets crisis to the UK economy stood at about £125bn a year. About £3.2bn is lost in direct tax revenue plus another £3.2bn on direct benefits spending, as well as around £15bn in scarring tax revenue and benefits spending.

Economists at EY said an upturn in the labour market could improve the outlook for public finances, as a faster fall in unemployment could raise Healey’s so-called fiscal headroom to about £40bn. 

A difficult Budget

Healey’s headroom against his fiscal rules, which state that government receipts must match day-to-day spending by 2030, is expected to have halved to around £12bn, City analysts have said. 

The Institute for Fiscal Studies has warned that current government spending plans are also at threat of being eroded by higher inflation. 

Helen Miller, director of the IFS, said a “’steady-as-she-goes’ Budget” was not an option available to the Chancellor.

Alongside an effort to provide “breathing space” to businesses and deliver support to some families ahead of a rise in household energy prices, Healey is widely expected to raise taxes. Expectations that banking profits, plus online retailers and investors, could be targeted are growing.  

A Treasury spokesperson said: “As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”