Minimum wage U-turn looms as UK's youth unemployment crisis sparks 'scrapheap' fears for workers

Figures from the Office for National Statistics (ONS) show that 16.1 per cent of those aged 16 to 24 are now unemployed, placing Britain above the EU average and marking a significant shift in the labour market for younger workers.

A reversal would represent the Government’s 16th policy U‑turn since Sir Keir Starmer entered Downing Street 18 months ago, underlining mounting pressure on ministers over economic strategy and labour‑market reforms.

Labour’s manifesto pledged to remove what it described as “discriminatory age bands” to ensure identical pay for all workers aged 18 and above, presenting the policy as part of a wider commitment to fair pay.

A decision could come within months as ministers prepare annual guidance for the Low Pay Commission, which advises the Government on statutory wage levels.

Business groups have warned that the policy is “pricing a generation of young people out of the workplace”, according to The Times, reflecting growing concern among employers about rising labour costs.

Three Government insiders told the newspaper that senior figures fear full wage equalisation could push youth unemployment even higher, particularly as businesses face broader cost pressures.

Ministers are now exploring alternative approaches, including delaying implementation until after the next general election.

Another option would apply equal minimum wage rates only to those aged 20 and over, rather than from 18 as originally proposed.

The review comes as separate research indicates that more than a third of employers intend to reduce recruitment in response to Labour’s workers’ rights reforms, which businesses say could increase compliance costs.

Currently, workers aged 21 and above must receive at least £12.21 per hour, while 18‑ to 20‑year‑olds are entitled to a minimum of £10 per hour.

Minimum pay for workers aged 21 to 22 has risen by 33 per cent over the past two years — a sharp increase which some economists argue has coincided with weaker employment growth among younger workers.

The Government’s decision to increase employers’ National Insurance contributions last April has also been cited by business leaders as a factor contributing to reduced hiring.

Shadow Business Secretary Andrew Griffith criticised the policy direction, saying: “Labour’s jobs tax, economic uncertainty and their red tape are holding back hiring, creating a jobless generation.”

The criticism adds to pressure on the Chancellor, who previously promoted wage equalisation as part of Labour’s wider economic fairness agenda.

Alan Milburn, former Labour Health Secretary and chair of the Government’s Young People and Work review, warned the trend may reflect structural changes rather than short‑term economic fluctuation.

“Forty‑five per cent of 24‑year‑olds who are not in education, employment or training have never had a job,” he said.

“If you haven’t had a job by 24, that entails a long‑term scarring effect and you’re probably then stuck in a lifetime on benefits.”

Mr Milburn also warned that some younger workers risk being pushed “on the scrapheap” if employment opportunities continue to decline.

Peter Dixon, an economist at the National Institute of Economic and Social Research, said rising wage floors may have influenced youth employment trends.

He noted that the 33 per cent minimum wage increase over two years coincided with the unemployment rate for 18‑ to 24‑year‑olds rising by more than two percentage points to 14 per cent.

Young men have been particularly affected, with more than 17 per cent currently out of work, the highest level in 12 years, highlighting widening disparities across demographic groups.

The figures are expected to feed into upcoming Government policy discussions as ministers assess how wage regulation, tax changes and employment‑law reforms are affecting hiring behaviour across the economy.

Officials are expected to continue consulting businesses, economists and labour‑market experts before final decisions are taken on whether to proceed with, delay or modify minimum‑wage equalisation plans.