Facing the highest youth unemployment in over a decade, ministers are caught between a manifesto pledge to raise wages and stark warnings from business that they are “pricing a generation out of the workplace.”

A Reckoning On The “Existential” Risk.

Just eighteen months into its tenure, the Labour government is facing a brutal economic paradox. Keir Starmer entered Downing Street on a platform dedicated to “making work pay” and eradicating “discriminatory age bands” that see younger workers paid less for the same job. However, a dramatic shift in the UK’s labour market is forcing a humbling policy rethink.

Official figures released this week paint a grim picture: the unemployment rate for 18- to 24-year-olds has surged to 16.1 percent, the highest level since early 2015. Excluding the pandemic spike, it is the worst rate in 11 years. Alan Milburn, the former Labour minister tasked with leading the government’s youth work review, has described the situation as an “existential” risk to the UK, warning of a “generation on the scrapheap”.

In response, the Treasury is signalling a significant departure from its election commitment. Government sources have confirmed to multiple outlets that plans to equalise the minimum wage for 18-to-20-year-olds with the over-21 rate by the next election are being “reviewed” or “slowed”. While Welsh Secretary Jo Stevens insisted on Wednesday that the policy “has not changed,” the weight of evidence suggests a U-turn, potentially the 15th of Starmer’s premiership, is imminent.

The Statistical Backdrop: A Decade Of Decline.

The data driving this panic is stark. According to the Office for National Statistics (ONS), the unemployment rate for 16- to 24-year-olds now stands at its highest level since 2014.

• The EU Comparison: In a troubling milestone, the Resolution Foundation noted that UK youth unemployment is now higher than the EU average for the first time since records began in 2000.
• The NEET Crisis: There has been a concerning rise in the rate of young people not in education, employment, or training (NEET), suggesting that the safety nets are failing.
• Sectoral Collapse: The hospitality and retail sectors, traditionally the primary entry points for young people into the workforce, are contracting. The Low Pay Commission (LPC) noted that the hospitality sector has lost over 70,000 jobs since the summer of 2024. Kate Nicholls, chair of UKHospitality, called the situation “heartbreaking,” accusing the government of taxing opportunities “out of existence”.

The Cost Of Hiring Young: A 26 Percent Spike.

At the heart of the debate is a simple arithmetic problem for employers. From April 2026, the costs are escalating rapidly:

• The National Living Wage (21+) will rise by 4.1% to £12.71.
• The 18-20 Year Old Rate will rise by 8.5% to £10.85.

According to the Centre for Policy Studies, the combined cost of employing someone aged 21 and over will have risen by 15% since 2024. However, for 18-to-20-year-olds, the increase is a staggering 26% or £4,095 per employee.

Business groups argue that this differential is destroying the incentive to take a chance on green labour.

• Federation of Small Businesses (FSB): Policy Chair Tina McKenzie warned that the same wage bill that covered a team of five young people will soon only stretch to four. The FSB found that 45% of small companies employing 16-to-20-year-olds have reduced recruitment due to rate hikes.
• British Chambers of Commerce: Over a third of firms (37%) stated that this increase will deter them from recruiting young workers.
• Institute of Directors: Research found that 13% of business leaders have already reduced the employment of 16-to-20-year-olds relative to other age groups in response to the increases.

The LPC’s Dilemma: A Cautious Path Forward.

The Low Pay Commission, tasked with balancing the books, has already effectively pre-empted the government’s dilemma. In its advice for the 2026 rates published in November, the LPC explicitly rejected moving 20-year-olds onto the NLW this year, stating it would have required an increase of over 25% and was “too risky” given the state of the youth labour market.

Baroness Philippa Stroud, LPC Chair, noted that while the NLW increases haven’t yet shown a “significant negative impact” on jobs overall, the youth market is different. Young workers are more dependent on vacancies, and in a “low hire, low fire” economy, they are the ones getting locked out.

The LPC has instead proposed a “backloaded” path: lowering the age to 20 in 2027, and to 18 by 2028 or 2029, subject to economic conditions. This official advice provides the perfect political cover for Starmer to delay the manifesto promise without technically “scrapping” it.

The Political Fallout: Union Anger vs. Economic Reality.

The prospect of a delay has ignited a firestorm on the Left.

• The Union View: Andy Prendergast, national secretary of the GMB Union, blasted the rethink as “nonsense” and “the wrong prescription.” He reminded ministers that “employers tell us that every single improvement in workers’ rights is going to cause a problem and time and time again they have been proved wrong”.
• Manifesto Watch: The GMB has warned that breaking this promise, a core plank of the “Make Work Pay” agenda, would be unacceptable to the labour movement.

However, the Treasury appears to be listening to a different constituency. Chancellor Rachel Reeves has notably dodged questions on the pledge twice in recent days, pivoting instead to talk about apprenticeship funding and National Insurance reliefs for young workers. One Treasury source told The Times that a slower equalisation was “all but certain”.

Critique: Is The Minimum Wage The Real Culprit?

While the political narrative pins the blame on the wage floor, a deeper investigation reveals a more complex pathology.

1. The National Insurance Crunch:
The LPC itself noted that employers are conflating multiple cost pressures. While the minimum wage is expected and planned for, the Chancellor’s October 2024 raid on employer National Insurance Contributions (NICs) caught firms “off guard.” The CIPD found that even among firms citing minimum wage pressures, more thought the NICs increase was the higher cost. This suggests the government may be blaming its left hand (the minimum wage) for the damage caused by its right hand (the Treasury tax hike).

2. Inflation and Interest Rates:
The macroeconomic environment is hostile. With inflation falling to 3% (a ten-month low), the Bank of England is poised to cut interest rates in March to stimulate growth. However, the damage to business confidence from the Autumn Budget may already be done. The ONS data shows payroll employment fell by over 170,000 in the past year, driven by subdued hiring.

3. The “Productivity” Myth:
The GMB argues that “younger workers are not less productive”. If that is true, then the age-based wage bands are purely discriminatory. But employers argue that productivity is tied to experience and training. By raising the price of entry-level labour, the government has made it financially logical for a business to hire one experienced 25-year-old rather than two school leavers.

Conclusion: The Art Of The Slow Retreat.

As it stands, the UK is facing a defining test of its economic management. The government is attempting to navigate a path between the Scylla of union betrayal and the Charybdis of youth unemployment.

The most likely outcome is a formal acceptance of the LPC’s gradualist roadmap: 20-year-olds will get the full rate in 2027, but 18 and 19-year-olds will wait until the end of the parliament. This allows Labour to claim it is still working towards “equalisation” while quietly admitting that, in the current climate, a theoretical living wage is useless if there is no job to attach it to.

As Alan Milburn’s review prepares to report in the summer, one thing is clear: the “existential risk” to the younger generation isn’t just low pay, it is no pay at all.