National Insurance is the Steering Wheel of Employment - and we’re turning it the wrong way
As unemployment recently hit a five-year high of 5.1%, a recent session of the Modernising Employment All-Party Parliamentary Group on Timeless Skills: Embracing Age Diversity at Work delivered a striking message: the UK does not have a willingness-to-work problem. It has an incentives problem.
Older workers want to return or rebalance their working lives. Young people want a first rung on the ladder. Employers want to grow. Yet too many hiring decisions are being quietly delayed or abandoned altogether.
The reason lies not in attitudes, but in how we price and regulate employment at the margin - especially in a weakening economy.
Evidence from the APPG
The APPG heard from employers, academics and practitioners that age-diverse teams perform better. Skills such as judgement, resilience, emotional intelligence and strategic thinking improve with age. Over-50s already make up roughly a third of the workforce, and many want to continue working - but not necessarily in the same roles or patterns.
Yet recruitment systems are not designed for multi-stage careers. CV-based hiring correlates poorly with performance. Algorithmic screening embeds bias. Job adverts often deter older applicants unintentionally. Flexibility and health-aware job design are too often absent.
At the other end of the labour market, nearly one million young people are not in education, employment or training. Entry-level jobs are disappearing, and with them the first rung of opportunity.
What links these two groups is not age, but proximity to the marginal hiring decision.
National Insurance: a tax on jobs
Employer National Insurance is, in practice, a tax on employment. When it rises, the cost of taking on, or keeping on, a worker rises with it.
In a growing economy, businesses may absorb that cost or delay its impact. In a contracting or fragile market, they do something much simpler: they hire less.
Crucially, employers do not respond evenly across their workforce. They respond at the margin. And the marginal hire is typically:
- a young person without experience, or
- an older worker or returner after a break or career transition, or
- someone with a disability or limiting characteristic, or
- charities, carers and flexible workers
When the cost of employment rises, risk aversion follows. Entry-level roles are frozen. Returnships are postponed. Flexibility disappears. Inactivity rises - not because people will not work, but because the system discourages employers from offering work.
National Insurance is not the only lever in the system, but it is a steering wheel. And at present, it is steering away from inclusion.
Why market conditions matter
Context is everything. In buoyant labour markets, inefficiencies are masked. In weaker ones, they are exposed.
With growth slowing and margins tightening, employers become more cautious. Any increase in the cost or complexity of hiring has a disproportionate effect on those furthest from the centre of the labour market.
Older workers take longer to find work. Younger workers struggle to find it at all. Both outcomes increase inactivity, reduce growth and place greater pressure on the state.
The APPG heard estimates that age-related exclusion alone costs the UK economy tens of billions of pounds each year. This is not merely a social issue; it is a structural growth failure.
The compounding effect of regulation
Cost is only half the equation. Risk is the other.
As the Employment Rights Bill progresses through Parliament, employers are also factoring in changes to dismissal rules, flexibility, contractual arrangements and compliance burdens.
Individually, many measures may be well-intentioned. Taken together - and layered on top of a rising tax burden on employment following two Budgets in one year - they alter behaviour.
When both the price of hiring (National Insurance) and the perceived risk of hiring rise at the same time, the rational response in a weak market is caution. The damage does not show up as mass redundancies, but as jobs that are never created.
Can NI be used to steer differently?
If National Insurance is a steering wheel, it can be turned deliberately — but only if policy design targets behaviour, not just cost.
Blunt exemptions risk deadweight. Smarter options might include:
- time-limited NI relief for net new hires;
- relief linked to structured returnships, retraining or flexible job design;
- raising the secondary threshold to reduce the burden on lower-paid, entry-level roles.
Used carefully, NI can encourage job creation, second chances and smoother transitions across longer working lives.
Raising the Secondary Threshold
Of the options above, raising the employer NICs secondary threshold (the earnings level at which employers begin paying Class 1 secondary NICs) is the cleanest systemic lever to reduce the cost of marginal employment, support participation and protect growth — while minimising deadweight, administrative complexity and behavioural distortion. It represents a compelling route to increase job creation and stimulate growth and productivity.
Additional employment brings additional income tax receipts, reduced welfare expenditure, and lower inactivity-related costs. The positive effects are not only fiscal but societal: labour-intensive charity work in hospices and community services contracts when marginal employment costs rise, and expands again when they fall.
Adjusting the secondary threshold is simpler than targeted incentives: it is easier to implement, simpler to administer and clearer to communicate without stigmatising particular groups or triggering gaming behaviours. From a public narrative perspective, “making it cheaper to create the first rung of work” has genuine cross-party appeal.
This proposal aligns closely with Conservative values and current Renewal thinking around opportunity, work, participation and economic re-engineering.
Fix the system, not the worker
The APPG made one thing clear: people are not the problem. Systems are.
Older workers are not less capable. Young people are not less motivated. Employers are not hostile to diversity. But incentives matter — and when they are misaligned, outcomes follow.
If we want more people working at every age, we must stop pricing and over-risking the marginal job out of existence.
National Insurance alone will not solve this. Recruitment practices must modernise. Flexibility must become normal. Skills and pension pathways must support longer, more varied careers.
But if we get the steering wrong, none of the rest will matter.
Summary
The core insight is that employer National Insurance operates as a steering mechanism for employment, particularly in weaker economic conditions. When the cost and perceived risk of hiring rise together, employers respond by reducing marginal hiring - locking out young entrants, older returners, disabled people and others closest to the labour market edge.
My proposal argues for raising the employer NICs secondary threshold as a neutral, systemic way to reduce the cost of the marginal hire, support participation, and protect growth - while avoiding the complexity and deadweight of narrow exemptions.
I believe this aligns strongly with Conservative values and Renewal thinking around opportunity, work, jobs and economic re-engineering.
