- A combination of tax rises and minimum wage rises, in successive Budgets, has drastically increased the cost of employing low-wage workers
- Between 2024 and 2026, the cost of employing a full-time worker on the minimum wage has risen by £3,414
- Increases in minimum wages for young people entering the workforce mean that the rise for workers aged between 18 and 20 is an extraordinary £4,095
- The Government argues that higher wages are good for employees. But it is an obvious truth that making it more expensive to hire people, especially young people, means fewer will be hired – hence the recent falls in job vacancies and rise in unemployment
- Almost half of the increase for workers aged 21 and over goes straight to the Government as taxation, while the taxes employers will have to pay per employee will have jumped 68%
The costs of employing young people entering the workforce have skyrocketed since Labour came to power, according to new analysis by the Centre for Policy Studies.
The research builds on earlier CPS analysis, which showed that Rachel Reeves’ first Budget made 2025 the most expensive year on record for businesses employing those on the minimum wage.
The increases to the National Living Wage, National Minimum Wage and Apprenticeship wages announced this week mean that trend will continue – with the changes disproportionately impacting younger and less experienced workers.
From April 2026, it will cost a business £25,852 annually to hire a full-time, minimum-wage worker over 21, up from £24,806 in 2025 and £22,438 in 2024. This is a 15% increase since 2024, or £3,414.
However, the increase has been even larger for 18- to 20-year-olds and apprentices. For someone aged 18-20 working full-time on the minimum wage, the cost has increased from £15,652 in 2024 to £18,200 in 2025 to £19,747 in 2026. This is a two-year increase of 26%, or £4,095.
For apprentices, the increase is from £11,648 to £13,741 in 2025 and £14,560 in 2026, also a two-year increase of 25%, and a cost of £2,912.
Even worse, much of this increase in cost is going not to the workers but to the Government. Those aged 21 and over will keep just half of the increase in labour costs via the higher minimum wage: the rest is taken in taxes.
Daniel Herring, CPS Tax and Fiscal Researcher, said:
‘With unemployment rising and job vacancies falling, Rachel Reeves should have used the Budget to announce pro-growth measures that encourage businesses to hire.
‘Instead she has piled up the cost of employment. Businesses faced with difficult operating conditions will be less likely to take a chance on a younger worker, or someone with fewer skills to offer, now that the cost of hiring them has skyrocketed. In the case of a young person an 18- to 20-year-old working full time, by over £4,000 in just two years.’
Robert Colvile, CPS Director, said:
‘We all want to see wage growth for low-paid workers but arbitrarily hiking wages while doing nothing to stimulate the economy is the wrong way to go about it.
‘Nothing Rachel Reeves announced this week will transform the economy into one where everyone can see their pay grow year after year. Instead businesses are seeing their tax bills spiral. And younger workers, or those looking to move back into employment, will be the ones to suffer.’
ENDS
NOTES TO EDITORS
- Daniel Herring is the CPS Head of Fiscal and Economic Policy and is available for interview
- ‘The Cost of Labour’ is available under embargo here
- For more information, please contact Emma Revell on 07931 698246 or [email protected], or Melisa Tourt on 07399 251110 or [email protected]
- Previous CPS reports relating to the budget and employment include:
- The Centre for Policy Studies is one of the oldest and most influential think tanks in Westminster. With a focus on taxation, economic growth, housing, immigration, and energy abundance, its goal is to develop policies that widen enterprise, ownership and opportunity.
Date Added: Friday 28th November 2025
