The government has signalled a radical shift in labour market policy, announcing it will adopt the Dutch youth employment model following a sharp rise in UK unemployment. The decision, confirmed by the Department for Work and Pensions this morning, aims to tackle the growing number of young people not in education, employment, or training (NEET). The latest figures show the UK jobless rate has risen to 4.4%, with youth unemployment particularly acute at 12.1%. This marks a 0.6 percentage point increase from the previous quarter, the highest since 2021.
Under the Dutch model, known as the 'Werkloosheidswet' or 'Unemployment Act' in its adapted form, the government will implement a system of mandatory job placements for 18- to 24-year-olds who have been out of work for more than six months. Those who refuse two suitable job offers will face a reduction in benefits. The model also includes intensive coaching and subsidies for employers who take on young workers. The Treasury estimates the scheme will cost £2.3 billion over the next three years, funded by a reallocation from the existing welfare budget.
Critics argue this is a thinly veiled assault on the welfare state. The Trades Union Congress described it as 'coercive and counterproductive.' However, the Chancellor defended the move, stating that 'the long-term cost of inaction is far greater. We cannot afford a lost generation.' The policy is expected to be rolled out in pilot areas by autumn.
The pivot to the Dutch approach comes after months of hand-wringing over sluggish productivity and rising inactivity. The Office for National Statistics reported that the number of young people classified as NEET has swelled to 870,000 in the latest quarter, a figure that alarms economists focused on the UK's long-term fiscal sustainability.
From a market perspective, the announcement has done little to reassure gilt investors. The 10-year gilt yield edged up 3 basis points to 4.12% on the news, reflecting concerns that the government's borrowing requirement will not be reduced anytime soon. The pound remained flat against the dollar, trading at $1.2650, as traders digested the implications for the labour market's structural flexibility.
What the Dutch model offers is a proven track record in reducing youth unemployment but at the cost of a more interventionist state. The Netherlands has one of the lowest youth jobless rates in the EU at 8.2%, but it also maintains a complex system of subsidised work and tight regulation. The question for Britain is whether this can be replicated without the same level of social consensus.
The City will be watching closely for the fiscal implications. If the scheme succeeds in getting young people into work, it could reduce benefits spending over time and boost GDP. If it fails, it risks adding to the public debt pile without tangible returns. The bottom line is that any policy that increases state involvement carries execution risk. The market abhors uncertainty and the path forward is anything but clear.
The proposed implementation will be legislated through a new 'Youth Employment Bill' to be introduced in the next parliamentary session. Opposition parties have already vowed to challenge it, and a lively parliamentary debate is expected. In the meantime, businesses are being consulted on how to handle the increased demand for placements. The hope is that the private sector will step up; the fear is that it may not.
Ultimately, this is a gamble. The Dutch model has its merits but transplanting it to the UK's labour market is fraught with challenges. The most significant of these are cultural: the Dutch have a tradition of cooperation between employers, unions, and the state. Britain's more adversarial industrial relations landscape may not be as fertile ground. As a financial editor who has seen countless policy imports fail, I remain sceptical. The bottom line is that unless the government can align incentives for all parties, this scheme may end up as just another line item in the welfare budget with little to show for it.
