The boss of one of Britain’s largest retailers has dropped a bombshell that will send shivers through Whitehall. Lord Wolfson, chief executive of Next, has warned that the labour market is about to suffer a “dramatic” collapse for young workers, blaming a toxic cocktail of rising national insurance, the minimum wage, and the looming increase in employer costs. For those of us who have watched the fiscal incontinence of recent budgets, this is not a surprise. It is the predictable outcome of a government that treats the private sector as an endless cash cow.
Wolfson, who has run Next for over two decades, told the BBC that the cost of employing young people is about to become prohibitive. “The combination of increases in national insurance, the national living wage, and the apprenticeship levy will make it uneconomic for many businesses to hire under-21s,” he said. “We are sleepwalking into a crisis of youth unemployment.”
Let us examine the numbers. From April, employers’ national insurance contributions will rise from 13.8% to 15%, and the threshold at which they start paying will drop from £9,100 to £5,000. For a worker earning £20,000 a year, that is an extra £600 in employer taxes. Add to that a near-10% rise in the minimum wage to £12.21 an hour for over-21s, and the total cost of employing a low-paid worker has jumped by roughly 15% in a single year. For young workers, the national minimum wage rises to £10.00 an hour for 18-20 year olds, but the employer’s tax bill also applies. The result? A £10-an-hour worker now costs the employer nearly £12.50 after NI, pension contributions, and other levies. That is a heavy price for a role that may be primarily about gaining experience.
Wolfson’s warning is particularly stinging because Next is one of the country’s biggest employers of young people. The company runs a large distribution network and retail chain that relies heavily on part-time and entry-level roles. If Next is sounding the alarm, you can bet that smaller firms are screaming in silence. The British Chambers of Commerce has already reported that hiring intentions are falling at the fastest rate since the financial crisis. The Office for Budget Responsibility, often accused of being too optimistic, forecasts that unemployment will rise to 4.5% by 2026, but that figure may now look quaint.
The government’s defence is that it is investing in “skills” and “opportunity”. The Budget increased spending on the apprenticeship levy and introduced a new “youth guarantee” for 18-21 year olds. But this is classic Labour thinking: throw taxpayer money at the problem while ignoring the root cause. The real problem is that the cost of labour has been artificially inflated by government fiat. When you make something more expensive, people buy less of it. In the job market, that means fewer hires. Basic economics, but apparently not basic enough for the chancellor.
The impact on the City is already visible. Gilt yields have spiked in recent weeks as markets price in higher borrowing costs to fund this spending spree. The pound has been volatile, and there has been chatter of capital flight as investors seek safer havens. The Bank of England has been forced to keep interest rates higher for longer to combat persistent inflation, which itself is partly driven by rising wage costs. It is a vicious cycle: government spending fuels inflation, the Bank raises rates to tame it, and businesses face higher costs and lower demand. The youth are caught in the middle.
Wolfson’s solution is straightforward: scrap or reduce employer NI for young workers. He points out that the Treasury would lose some revenue, but that would be offset by lower welfare spending and higher economic activity. It is a simple supply-side reform that would make it cheaper to hire the next generation. But in this political climate, it faces an uphill battle. The Treasury is hooked on revenue, and the Chancellor is unlikely to give up a tax that raises over £20bn a year.
The bottom line is this: the British economy is turning into a hostile environment for job creation. The state’s appetite for spending is crowding out private investment, and the regulatory burden is crushing small businesses. If we do not change course, we will see a lost generation of British youth forced into long-term unemployment or dependence on the state. That is not just an economic failure. It is a moral one.
