Young people are right not to get out of bed for less than £40k
There have been lots of different explanations offered for why almost a million 16 to 24-year-olds are neither working, training nor studying. But as one expert told a House of Lords committee this week, there is a far simpler explanation: it is not worth the hassle of getting out of bed for less than £40,000.
If that is true, it would be easy to condemn them as idle and feckless. But they are also completely right. Until we fix a dysfunctional welfare and tax system it isn't going to change – because people won't bother to work unless it pays to do so.
It was the kind of hard truth that was not meant to be mentioned in polite society. Appearing before a House of Lords social mobility committee this week, Graham Cowley, who works with young people not in employment, education nor training – or 'Neets' – argued that lots of them 'don't want to work for anything less than 40 grand'.
While the Lords gasped in horror, he reminded them 'you may laugh, but that is the reality' – and he is completely right.
The UK faces a growing challenge that many young people are no longer bothered to either get a job or even to prepare themselves for one. According to the official figures, 595,000 16 to 24-year-olds are classed as 'inactive' while another 392,000 are 'looking for work', but perhaps not very actively since they don't seem to be having much success.
The shadow chancellor, Mel Stride, has suggested that they may be addicted to online pornography and video games, while the Liz Kendall, the Work and Pensions Secretary, has suggested that especially since Covid many of them find the concept of work 'too stressful'.
From coaching, to encouragement, to more stringent medical checks there are lots of different suggestions about ways of getting them out of the house and into a warehouse, factory or retailer to start their career.
The trouble is, it is hard to believe any of that will make any significant difference. It is hard to know what exactly Stride is going to do about online pornography, and Kendall can't turn back the clock and reverse lockdown – as desirable as that might be. In reality, there is a simpler solution.
Although it might come as a surprise to some of the people on the Lords committee, most people work just to make money. Many teenagers and 20-somethings have worked out for themselves that the UK's welfare and tax system has become so bloated and inefficient that getting a job hardly pays any more. They are just making a rational choice.
To start with, taxes are far too high, and they become even higher as you start to climb your way up the career ladder. According to the Centre for Policy Studies, the effective tax rate even for someone on the minimum wage has more than doubled in the last decade alone, rising from an effective 11pc in 2015 to more than 21pc now.
Even worse, if you study for a degree, the repayments on the loan you will have to take out to finance it kick in at far too low a level, and you will be charged a punitive rate of interest. On some plans you start repayments on just £25,000 a year, and you will be charged 7pc interest on the debt you have taken on. On almost any graduate job available, you will have to start repaying your loan, significantly increasing your effective tax rate.
Next, wages are not high enough. Wave after wave of mass immigration has driven down salaries, especially for the relatively low-skilled, entry-level jobs that are typically all that is on offer to teenagers and 20-somethings making their first steps into the workforce.
The average non-graduate salary is now £29,000 in the UK, up from £22,000 a decade ago, but once the cost of living and the extra taxes are taken into account it has gone down in real terms.
Even worse, while many Neets may imagine they will finally stir themselves to get out of bed in the unlikely event that someone offers them £40,000 a year to do so, they probably won't find that very worthwhile either.
As soon as they get a promotion or a bonus they will start paying tax at 40pc, and, given the Chancellor does not show much inclination to ever raise thresholds again, that will probably be the rate for someone on the living wage by the end of the decade.
If they climb further up the ladder, child benefit starts to be withdrawn, and as the personal allowance is tapered away their marginal tax rates soon climb to 60pc or more. Staying in bed will become more and more tempting.
It is a crazy system, and one that is dragging down the entire economy. There is no point in accusing the Neets of being lazy, or not bothering, of being addicted to the web, or lacking the spine of earlier generations.
It is insulting, it is not fair, and even if there was some element of truth to it, there is not much we can do about it anyway.
Instead, we need a wholescale reform of the tax and benefit system. If we have to cut spending to pay for it, then that is the only option.
An entire generation is making a perfectly rational decision that work does not pay enough to be worthwhile any more – and until that calculation changes there is very little prospect of the economy ever starting to recover.
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