1. £1bn for small firms — but are microbusinesses being left out again?

           

We can’t afford to have almost 1 million young people out of work but small businesses can no longer afford to employ them.

This is a structural issue, it’s not just ‘a bit worrying’. It’s economically and socially massive.

The latest official government figures show that around 957,000 young people (16–24) are currently NEET (not in education, employment or training). That’s about 1 in 8 of everyone in that age group. The impact on the economy is huge as are the implications for our future labour force. There’s also a devastating affect for the young people themselves in the short, medium and long term.

 

Recent analysis linked to the latest figures estimates that NEETs are costing the UK nearly £21 billion in lost Gross Domestic Product (the official measure of how our economy is doing).

That £21bn is made up of lost output, lower tax and national insurance paid to the Treasury, and higher welfare and public service costs and that’s the tip of a huge iceberg:

• Lost productivity and output:

o Short term: almost a million people aren’t contributing their potential skills, labour and creativity to the economy.

o Medium term: employers will find it tougher to get the workers they need, especially in entry level roles. If you can’t get the people, you can’t grow and business expansion slows down unless you’re in a sector where you can replace people with tech.

• Higher public costs:

o More young people out of work means more welfare spending, plus increased demand for help with housing, health care, mental health services, and local authority support.

o At the same time, the amount of money available for spending on public services goes down because earnings, consumption and business activity are all below potential.

• Under used potential:

o We need our 16–24-year-olds to be building skills, work habits and networks. When that doesn’t happen, the economy loses a chunk of its future skilled workforce, people drop out in the long term and skills aren’t kept up to date.

Early unemployment leaves a mark that can last decades. Economists call it the scarring effect.

• Lower lifetime earnings:

o Spending time unemployed before the early 20s is associated with persistently lower wages even 20 years later, because of weaker CVs, lost experience and slower progression.

• Weaker attachment to the labour market:

o The longer someone is out of education, training or work, the more likely they are to cycle in and out of low paid, insecure work or drop out of the labour market completely.

• Skills mismatch and obsolescence:

o The workforce and technology change quickly and that means skills become outdated quickly. A 22 year old out of work for several years can already be behind in digital, sector specific and the core skills employers expect.

Over time, this creates a pool of under employed people who never fully catch up and that has a drag effect on productivity and wage growth.

All of this has a longer-term impact on the wider economic and on society

• Productivity and innovation:

o A large cohort of young people not progressing through work or training reduces the pipeline of future managers, entrepreneurs and specialists, which hits long term productivity and innovation.

• Regional inequality:

o NEET rates are highest in already disadvantaged regions such as parts of the North and Midlands, which reinforces regional economic divides and makes “levelling up” much harder.

• Health and public services:

o There’s real added pressure on mental and physical health, which increases long term pressure on the NHS and other health services.

• Social cohesion and trust:

o A generation that feels locked out of opportunity is more likely to disengage, mistrust institutions and participate less in wider society, all of which have indirect economic costs, increases inequality and can ultimately lead to fractures in society.

If this persists, by the 2030s and 2040s the UK could be facing:

• A smaller, less skilled core workforce, with more people in low productivity, low pay roles.

• Chronic skills shortages in growth sectors like technology, green, digital, health, advanced manufacturing, because too many young people don’t find the routes into those sectors early on.

• Higher structural unemployment and inactivity, making it harder for policymakers to boost growth without triggering inflation.

• Greater pressure on employers to invest in training, basic skills and support that could have been more efficiently delivered earlier in life.

There’s also an impact on retiring workers. Your National Insurance contributions aren’t used to pay your state pension. They are paid into the pot that pays out for the people retiring before you. If our young people aren’t paying National Insurance Contributions into the pension pot now and in the years ahead the point will come when the system can’t afford to pay out state pensions.

We all need to come up with ideas to help the Government to resolve this issue. My suggestion is we make it affordable for small and micro businesses to employ young people to help them become more productive and grow. National Insurance Contributions, wage increases and tax admin have all contributed to the surge in NEETs. The longer they aren’t affordable to employ, the more businesses will shift to technology including AI. We need to get a grip and fast.

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