Rigorous welfare reforms for the under-25s must be combined with targeted tax breaks. That’s the best way to get young Britain going and galvanise the new electorate.
For keen observers, Ed Miliband’s speech on welfare may sound familiar. Last November Labour dropped plans — to scrap benefits for the under-25s — like a hot potato after vicious attacks from activists. Yet a few months on and Miliband rehashes these, pledging to continue good work this government is already doing, for instance young people already receive a lower rate of Jobseeker’s Allowance and can already take up training and continue receiving their benefits.
It seems that Ed Miliband is the timid toad sat at the edge of the pond, just dipping his toe-in. If Labour are going to be the Party that governs for young Britain they have to go big, be bold and lead the charge on welfare reforms for the under-25s and combine these with targeted tax incentives.
If we are going to crack deep-rooted youth unemployment once and for all and make sure that young people move from school into training, university or work, whatever the economic forecast, we need a fundamental rebalancing of the system.
The Prime Minister has already pledged to go further than Labour, announcing his intention to have every young person under the age of 25 earning or learning with no automatic entitlement to benefits. This follows in the footsteps of Australia where nobody can claim benefits under the age of 25 but are entitled to a Youth Allowance – with a likely six month wait after leaving school. This will help thousands of youngsters go straight into new training courses and real jobs – not leave them kicking around on benefits – whilst also saving millions of the budget’s bottom line.
But this stick is in need of a carrot, our youngsters should be in jobs that pay a worthwhile wage and not get clobbered by the tax system. As we can all testify, it’s expensive to get yourself off the ground: a rent deposit, new work clothes, saving for a family, so we need to make sure the tax system works alongside welfare to help those who are just getting going.
Why, for example, should a 19-year-old earning just £5.03 an hour pay more than £200 in National Insurance Contributions each year? Similarly, apprentices receive training wages as they prepare themselves for their careers – yet they also must give a way a chunk of their salary to the government. We should start thinking about a special youth tax rate to let the under-25s keep more of what they earn. Raising the tax threshold to £12,000 would cost less than £400 million and be easy to administer through PAYE, as the current higher tax threshold is for older workers. This would save a new school leaver roughly £400 a year, that’s a month’s rent in Newcastle.
Tough welfare reforms are absolutely essential if we are going to set young Britain up for the future, but to have maximum impact they should be combined with a new Youth Tax Rate. Only the Party that gets this and earns the respect of Gen Y will engage the new electorate; winning over Generation Right.
Lottie Dexter is director of Million Jobs