British companies are struggling to afford to hire young people after a long period of rising costs that have hit profit margins and derailed recruitment plans, business leaders say.
Rising labour costs including increases to the minimum wage and employer’s national insurance by the government have put young people at the back of the queue when employers consider recruitment, business lobby groups told MPs.
They added that the Employment Rights Act threatened to make the situation worse if it discouraged employers “from taking the risk” of hiring young people with fewer skills, or without a long track record in the workplace.
The British Chambers of Commerce (BCC) expects the unemployment rate to rise to 5.5% this year and said young people would be “disproportionately affected”.
The Office for National Statistics said last month that the rate of unemployment was 5.2% in the three months to the end of December, with almost 1.9 million people affected. Figures for 16- to 24-year-olds showed 957,000 were out of work.
Kate Shoesmith, the director of policy and insights at the BCC, said: “Businesses are trying their level best to stay afloat right now.” She said firms wanted to hire staff but “the simple costs of that right now are really impacting them”.
Chris Russell, the senior policy manager at the Federation of Small Businesses (FSB), said a survey of firms covering the three months to December 2025 found that 26% were employing fewer workers than the previous quarter. “That’s the worst percentage score since we started this survey more than a decade ago.”
He said young people were losing out after employers switched tactics to alleviate cost pressures.
“When the cost of employing people increases, it changes behaviour,” he said. “When we ask about whether they would be willing to employ someone with less experience or a lack of qualifications, our members increasingly say, as wages have increased and employment costs have increased we are looking for people who are more qualified and don’t have gaps in their CVs, and that often means young people miss out.”
The warning came as MPs on the all-party work and pensions committee carries out an inquiry into the reasons behind an increase in young people not in education, employment or training (known as Neets) to almost 1 million.
Last year, the government asked the former health secretary Alan Milburn to oversee a review into unemployment and economic inactivity among young people.
Milburn said young people faced an existential crisis and that there was a growing fear in society that they now had worse prospects than their predecessors in terms of employment and home ownership.
“I think people feel that the social contract that we’ve had in society – that each generation would do better than the last – is now being broken,” he said last month.
Shoesmith said more than half of firms that responded to a BCC survey believed they would struggle to grow this year. It also found companies were nervous over a potential further increase in costs owing to the conflict in Iran.
FSB members said in a survey that they have increasingly looked for recruits with higher skills and fewer gaps in their CV, “which works against young people”.
