Bank of England chief economist blames Labour tax hikes and minimal wage will increase for youth unemployment surge

The Bank of England has blamed Labour’s punishing tax raids and minimum wage hikes for driving up youth unemployment.

Huw Pill, the Bank’s chief economist, told MPs that while it was hard to calculate the impact of the policies on the wider workforce, they have had a ‘particular effect’ on young people.

It comes after figures last week showed youth unemployment has soared to an 11-year high of 16.1 per cent under Labour. That compares to a rate of 5.2 per cent for the wider workforce, though that is still a five-year high.

Mr Pill expressed his concern about the trend and the fear that being left on the jobs scrap heap could cause ‘ long-lasting’ damage.

And Bank of England governor Andrew Bailey said of the youth unemployment rate: ‘Let’s be honest, it’s high – it’s gone up more rapidly than the overall level.’

It comes after Labour staged a £25billion raid on employer National Insurance last year – putting up the rate paid by firms and reducing the salary threshold at which they start to pay it. The effect has been to make it much costlier to employ part-time or low-paid staff. 

Meanwhile the Government has also sharply hiked minimum wages, with larger increases for under-21-year-olds bringing them closer to the rate paid to older workers. That has also deterred employers from taking a chance on hiring younger people.

Speaking at a hearing of the Commons Treasury select committee, Mr Pill said the issue of young people’s employment was ‘very immediate, personally’ as his own daughter is looking for a job.

Huw Pill said the policies were having a ‘particular effect’ on young people

 He said tax and minimum wage changes have ‘particularly had an effect at the 16 to 18, and 18 to 21-[year olds]’.

‘That’s because some of the changes have been to move some of the special lower [wage] rates… up to the normal rates,’ he added.

‘Similarly, the changes in the national insurance contributions… had the impact of the thresholds etc.

‘Both of those things have had a particular effect on young people. Some of the changes have been particularly acute for that part of the labour market.’

Mr Pill expressed his concern that these have added to the pressure on the jobs market for young people which is already being squeezed by other factors including the rise of artificial intelligence, which threatens to replace entry-level jobs.

‘Having your first job is an important part of being able to enter the labour market and be productive,’ he said. ‘The more difficult that is [it] can have very long-lasting effects and they do cross with things like mental health issues.’

Mr Bailey said that, across the wider jobs market, employers had previously been ‘hoarding’ staff because it was difficult to find people to replace them – but that effect is now ‘unwinding’.

But the governor said that rather than a ‘particular uptick in redundancies’ some firms were ‘just not hiring’. That was partly in response ‘to the change in the cost of employment’, he added.

Alan Taylor, also a member of the Bank’s rate-setting Monetary Policy Committee, said that the economy had previously been ‘quite resilient’ despite high interest rates, and had avoided the ‘high sacrifice’ seen when unemployment spiked in the 1980s.

But he added: ‘It struck me… throughout the last 12 to 18 months that that resilience was starting to go away.’

The comments come after the Bank delivered a gloomy economic outlook earlier this month, predicting that growth would slow to 0.9 per cent this year and unemployment would climb to 5.3 per cent.

Experts at JP Morgan are even more pessimistic on the damage done by Labour, predicting the jobless rate could hit 5.5 per cent by late spring and even reach 6 per cent by the end of the year.

Allan Monks, chief UK economist at the US bank, said: ‘Over a year has passed since the tax hike and the jobs market is still stagnating.’

In another grim update yesterday, it was revealed that retailers are cutting jobs at the fastest pace since 2023 as surging costs and weak consumer demand prompt high street firms to scale back hiring and investment.

The data from the Confederation of British Industry (CBI) revealed that the grim weather of recent weeks had added to the gloom by deterring shoppers from venturing out.

It came a day after figures from jobs website Adzuna revealed the number of graduate roles had tumbled 45 per cent in the past year, prompting accusations that Labour was creating a ‘graduate jobs apocalypse’.