David Willetts: There could soon be over a million young NEETs and Government policy is making it worse

David Willetts is President of the Resolution Foundation.

 Modern economies have to incorporate young people into the jobs market.

That does not necessarily mean they have to get a round peg into a round hole straightaway. Indeed a few years in your twenties moving around and trying out different jobs before you settle makes a lot of sense. But a key reason for youthful unrest is closed or patronage based jobs markets which exclude too many and waste talent – the Arab Spring was an extreme version of this problem.

Britain has a mixed record on the number of young people not in Education, Employment or Training – the so-called NEETs. It has been rising and is now up to 987,000 and could soon go through a million. That is 542,000 young men and 445,000 young women.

It adds up to over 13% of 16-24 year olds.

There are some problems with the data. There is a discontinuity so it is hard to compare back before 2019 when the rate was about 11%. And the Office for National Statistics has been having real difficulties with all its survey-based labour market data so these figures are not precisely accurate. But they are a useful guide to the trend, which is heading in the wrong direction.

So it does look like a clear indication of labour market failure – especially as one of the historic factors driving the number of NEETS, the number of young mothers, is now falling.

The interaction of three Government’s policies could well be making the problem worse.

First the national living wage for young employees has increased to £12.21 for people aged 21 and over and £10 for 18-20 year olds. Tories warned about the minimum wage causing unemployment when it was introduced 25 years ago but our fears proved to be misplaced so we then embraced it – George Osborne in particular pushed it up hoping to reduce the amount of benefit spend topping up low wages.

There does however come a point when it could do damage to job prospects. The Low Pay Commission are very aware of this but decided on an increase of 6.7%. They have also phased out the lower rate for 21-24 year olds and pushed up the rate for 18-20 year olds by 16%. This is part of Labour’s manifesto plan to phase out lower rates for younger workers.

The Low Pay Commission took that decision without knowing of the Government’s plans to increase employers national insurance and to cut back the exemption for low earnings from earnings under £9,100 to under £5,000. Employers may respond to the increase in national insurance by cutting back on pay increases but that is not possible when employees are on the minimum wage – though the employer national insurance does not affect under-21s.

However the combined impact of these two measures may still be heavier than intended. Had the Low Pay Commission known that the Government was planning to put up employer National Insurance it might well not have proposed such a big increase in the National Living Wage.

Then add in the third factor hitting young people trying to get into work for the first time- the Employment Rights Bill.

There is a case for improving employment rights carefully and selectively. However the provision to give employees many more rights from day one is a  risk to the prospects of younger people with no previous employment record. Some rights are to be phased in with a new initial period of employment which could last up to nine months. And there are some limits on claims. Nevertheless this is a big change from the current regime where unfair dismissal rights start after two years. Employers may well think that taking on a new recruit fresh out of college or university is too much of a risk. Putting all three measures together and there is a real danger that the number of young NEETs goes through a million.

There are deeper problems too. We have a brutal GCSE divide at age 16. About a third of young people in England, about 200,000 a year, do not achieve the basic standards in GCSE English and Maths. They are then put on a round of resits which do very little to help them progress. Their job and earning prospects are poor. There are not many advanced Western countries which write off almost a third of their young people at age 16. Labour are trying to improve the resit regime and we must hope that works.

Meanwhile however Labour are still supporting the last Conservative Government’s T levels which have turned into an expensive experiment. 25,000 young people started them last Autumn but at least a third drop out so they have not yet become a viable alternative to A levels. And they aren’t a real alternative anyway as they are also quite academic. They also require unrealistic amounts of work experience time – 45 days with an employer. These are hard to obtain, promoted with expensive subsidies, and are diverting work experience placements from other young people.

Neither employment policy nor education policy are doing enough to help young people into work. There is only one assessment of where we are now: Must do better.