Britain’s youth unemployment tops Europe for first time

Britain’s youth unemployment rate has risen above Europe’s for the first time as a Bank of England official blamed minimum wage increases for pricing young people out of work.

Unemployment among 16 to 24-year-olds jumped to 15.3pc in the three months to September, surpassing the EU’s rate of 15pc, according to data published by the OECD.

It marks the first time youth unemployment in Britain has been higher than in the bloc since records began in 2000.

Catherine Mann, one of the Bank’s most senior officials, warned that “substantial” increases in the minimum wage started under the Tories and continued by Labour had “manifested in unemployment” for the young.

The former OECD chief economist said government policy had been the biggest driver of the recent surge in the youth jobless rate.

In an interview with The Telegraph, Ms Mann said: “I think we have to be very careful in the storyline about youth unemployment being the canary in the coal mine for a deeper deterioration in the labour market.

“The accumulation over three years of the rise in the national living wage for that group has been manifested in unemployment for that category of workers. Very unfortunate, but it is true. It is a fact.”

Ms Mann, a former adviser to George H.W. Bush who now helps to set UK interest rates, joins a chorus of economists and Left-wing think tanks in warning that inflation-busting increases in the minimum wage are weighing on the economy.

Even Angela Rayner, the former deputy prime minister, has admitted excessively high wages for the young are making it harder for them to get jobs.

Ms Rayner, who is rumoured to be plotting a leadership challenge against Sir Keir Starmer, last week conceded that the minimum wage policy she has long championed presented a “challenge” for businesses.

Labour has pledged to abolish what it has described as “discriminatory age bands” by scrapping the youth rate of minimum wage, which has existed since the system was introduced in 1999.

In April 2024, then-chancellor Jeremy Hunt abolished the youth rate for 21 and 22-year-olds. Labour have since dramatically narrowed the gap between the youth rate and the main minimum wage through a series of steep increases for the young.

Rachel Reeves raised the rate for 18 to 20-year-olds by 16.3pc in April 2025, from £8.60 per hour to £10. For workers aged 21 and over it climbed 6.7pc from £11.44 to £12.21.

In April, the youth rate is set to rise again by 8.5pc to £10.85 per hour. For those aged over 21 it will climb 4.1pc to £12.71 per hour.

Lower wages for the young were designed to encourage employers to take a chance on less experienced juniors.

Paul Johnson, the former director of the Institute for Fiscal Studies, warned that recent changes were making it harder for people to get their first job.

He said: “If employers have a choice between paying the same for an 18-year-old and a 25-year-old, why on earth would they choose the 18-year-old? There was a good reason for having that lower rate for the younger group.”

The OECD figures reveal 150,000 more young people are out of work since Labour took power, taking the total number of unemployed 16 to 24-year-olds to 729,000.

As well as being higher than the EU average, the youth unemployment rate in the UK is now higher than in Hungary, Slovenia and Poland and on the cusp of overtaking Greece – where youth unemployment hit 60.6pc in the wake of the eurozone crisis.

Andrew Griffith, the shadow business secretary, said: “For decades one of Europe’s epic failures was its high levels of youth unemployment.

“So it’s a complete disaster that even before the worst of their policies have fully hit, Labour have made the UK worse than Europe on youth unemployment.”

Ms Mann described Britain’s economy as “sluggish” and “tepid” as she warned that consumers had been “scarred” by high inflation, which meant they were spending less and saving more.

She also warned that the “key elements” for growth were currently missing.

She said: “The supply side of the economy is productivity growth, business investment and labour, and we’re basically not firing on any of those cylinders. And that’s a problem.”

Ms Mann is one of nine people who sit on the Bank’s Monetary Policy Committee, which sets interest rates.

While she was clear she understood “the objectives” of raising the minimum wage, she warned that bosses may adjust to higher costs by slashing staff.

She said: “Firms can raise prices, firms can lower wages, firms can improve productivity, and firms can choose not to hire. And those margins of adjustment are going to be different across the categories of workers. For some of those workers, you can’t cut wages. That’s what the national living wage is about, right?”

As a result, many firms had to “make a decision about not hiring”, she added.

The rise in youth worklessness in the UK comes amid a decline in retail and hospitality jobs, which typically employ a high proportion of young people.

These industries have also been hammered by Labour’s tax raids on employer National Insurance contributions and changes to business rates.

Mr Johnson said: “The increase in employers’ National Insurance contributions was actually designed to hit employers of low-wage people harder, and obviously, on average, younger people earn less, so you’d expect that to hit them harder.”

The Government has been warned that its pledge to abolish the youth rate of the minimum wage risks making under-25s less employable.

Louise Murphy, a senior economist at the Resolution Foundation, said the Government should “tread very carefully.”

She said: “When you look at some countries with very high rates of youth employment, places like Netherlands, Denmark, other European countries, it’s quite normal to have lower youth minimum wage rates compared to the adult rates.”

She added that the Government needed to balance its aim of boosting the living standards of young people against the threat of damaging their employment prospects.

A government spokesman said: “Youth unemployment has been on the rise since 2022, and we are taking firm action to get young people into good jobs and drive growth in every part of the country.

“We are investing £1.5bn in work, training and apprenticeship opportunities and making it easier for businesses to back young talent through National Insurance relief, while Alan Milburn’s independent review will get to the root causes of youth inactivity.”

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