Bank of England policymaker warns Labour’s steep minimum wage rises are pricing young people out of work.
Britain’s youth unemployment rate has risen above the European Union average for the first time since comparable records began in 2000, according to new figures from the Organisation for Economic Cooperation and Development.
The OECD data show that 15.3 per cent of 16 to 24 year olds in the UK were unemployed in the three months to September, compared with 15 per cent across the EU. It marks a significant reversal, placing Britain behind the bloc on youth employment.
The increase has drawn criticism from within the Bank of England. Catherine Mann, a senior member of the Monetary Policy Committee, said sharp rises in the minimum wage had directly contributed to higher joblessness among younger workers.
In an interview, she 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.”
She added: “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.”
Mann, a former chief economist at the OECD and one of nine officials responsible for setting UK interest rates, said government policy had been the biggest driver behind the recent surge in youth unemployment.
The total number of unemployed 16 to 24 year olds now stands at 729,000, an increase of 150,000 since Labour entered government. Britain’s rate is not only above the EU average but also higher than in Hungary, Slovenia and Poland, and is approaching that of Greece, which experienced a severe youth unemployment crisis during the eurozone turmoil.
Labour has committed to abolishing what it describes as discriminatory age bands in the minimum wage system, effectively removing the lower rate for younger workers. The youth rate has existed since the minimum wage was introduced in 1999 and was designed to encourage employers to hire less experienced staff by allowing them to pay a lower starting wage.
In April 2024, the then chancellor removed the youth rate for 21 and 22 year olds. Since taking office, Labour has further narrowed the gap between youth and adult rates through substantial increases.
In April 2025, the minimum wage for 18 to 20 year olds rose by 16.3 per cent, from £8.60 to £10 per hour. For workers aged 21 and over, the rate increased by 6.7 per cent, from £11.44 to £12.21. The youth rate is due to rise again this April by 8.5 per cent to £10.85 per hour, while the rate for those over 21 will increase by 4.1 per cent to £12.71.
Paul Johnson, former director of the Institute for Fiscal Studies, warned that compressing pay rates across age groups risks pricing younger applicants out of entry level roles.
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 deterioration in youth employment has coincided with a slowdown in sectors such as retail and hospitality, industries that traditionally employ a high proportion of young people. These sectors have also faced higher employer National Insurance contributions and changes to business rates introduced under Labour, adding to cost pressures.
One pub owner in the Midlands said rising wage costs and tax changes had forced him to cut back sharply on hiring young staff.
He said: “Just look what this Labour government are doing. I own a pub and used to hire 7 young people. We now employ 2. It’s the same across the country. It’s too expensive to hire. They are killing businesses and these kids just can’t get on the ladder.”
Johnson said the increase in employer National Insurance contributions had been structured in a way that would hit employers of low wage workers harder, noting that younger employees typically fall into that category.
Mann described the wider economy as “sluggish” and “tepid” and warned that the “key elements” required for stronger growth were 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.”
While she said she understood “the objectives” of raising the minimum wage, she cautioned that firms respond to higher costs in predictable ways.
“Firms can raise prices, firms can lower wages, firms can improve productivity, and firms can choose not to hire,” she said. “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?”
She added that, in many cases, businesses had to “make a decision about not hiring”.
Louise Murphy, senior economist at the Resolution Foundation, urged caution over plans to abolish the youth rate entirely. She noted that several European countries with strong youth employment records maintain lower minimum wages for younger workers.
She said the Government should “tread very carefully” and balance efforts to raise living standards against the risk of damaging employment prospects.
A government spokesman said youth unemployment had been rising since 2022 and that ministers were investing £1.5 billion in work, training and apprenticeships. The spokesman also pointed to National Insurance relief for businesses and an independent review into youth inactivity led by Alan Milburn.
The latest figures underline the mounting strain in the youth labour market, with critics arguing that Labour’s rapid wage increases and tax changes have intensified pressures on employers and reduced opportunities for young people seeking their first job.
