The World of Politics

POLICY BANK RECOMMENDATIONS

National Insurance Exemption for Under-25s

Policy idea

Remove Employers’ National Insurance Contributions (NICs) for all employees and apprentices under 25, and phase in employee NICs gradually between ages 22 and 25 to reduce barriers to youth employment.

Problem this addresses

• Youth unemployment in the UK has been rising since mid-2023.
• Employers face weak incentives to hire, train and retain younger workers relative to experienced staff.
• Delayed entry into the labour market significantly increases the risk of long-term unemployment and NEET status.

Proposal

• Extend existing NIC exemptions so that employers pay no Employers’ NICs for any employee or apprentice under 25.
• Exempt employees from their own Employee NICs until age 22.
• Phase in Employee NICs at 33% increments in the years individuals turn 22, 23 and 24.
• Employees become full NIC contributors from age 25.

Why this matters

• Reduces the upfront cost to employers of hiring young workers.
• Encourages earlier labour market entry after school, college or university.
• Supports training and retention rather than churn among younger staff.
• Aims to prevent young people becoming long-term NEETs, which carries high lifetime fiscal and social costs.

Fiscal impact

• Short-term loss of National Insurance revenue.
• Offset by reduced expenditure on unemployment benefits, training programmes and long-term welfare support associated with youth unemployment.

Barriers and trade-offs

• Risk of labour market substitution with employers favouring under-25s over older workers.
• Potential displacement effects if relief is not monitored.
• Will require ongoing evaluation to ensure net employment gains rather than reshuffling.

Context

Evidence from youth employment research consistently shows that early attachment to the labour market improves lifetime employment outcomes. Rising NEET rates highlight the cost of delayed or failed transitions into work.

Sources and further reading
Youth Employment UK: Youth Voice Census 2025
Children & Young People Now: Tackling Youth Unemployment
Andrew Powell, Annalise Murray, House of Commons Library:
NEET: Young people not in education, employment or training – 20th November, 2025
Learning & Work Institute

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State Pension Age and Uprating Reform

The UK state pension system is becoming increasingly generous to current retirees while placing growing fiscal burdens on younger generations. Reforming pension age entitlement and uprating rules is not about cutting support, but about restoring fairness between those drawing pensions today and those expected to fund them tomorrow. A sustainable system must balance dignity in retirement with honesty about demographic change.

Policy idea
Accelerate the already scheduled increases in State Pension age and reform the uprating mechanism (ending the triple lock) to improve fiscal sustainability while framing reforms around intergenerational fairness and retirement security. [This policy idea is a summary of the analysis and policy proposals set out in the TWOP weekly politics round-up #16 on 28th July, 2025 – so good we thought it deserved promotion to the Policy Bank. There is more analysis and commentary contained in the July piece.]

Problem this addresses

• UK public spending on state pensions is rising as the population ages, putting long-term strain on public finances.
• Current pension uprating (the triple lock – higher of CPI inflation, earnings, or 2.5 %) has boosted pension incomes but greatly increased costs.
• Pension age increases have been slow and irregular, leaving a growing share of older adults in pensionable years without realignment to life expectancy trends.

Proposal

1. Accelerate Pension Age Increases
   • Bring forward scheduled increases so that State Pension age reaches 72 by the early 2050s, rather than lingering at 68.
2. Reform Uprating Mechanism
   • End the triple lock in favour of inflation-linked (CPI) uprating only, to slow the growth in pension outlays while maintaining relative income security.
3. Support Private and Workplace Retirement Savings
   • Complement state reforms with incentives for employer and individual retirement saving to reduce future dependence on public pension outlays.
   • Make State Pension entitlement for the generation currently aged under 35 explicitly a “SAFETY NET ONLY” structure and mandate Private/Workplace provision to produce non-State Pension entitlement at selectable age post-55 of 2/3rds of final salary.

Why this matters

• Aligns pension entitlement with demographic and fiscal realities over coming decades.
• Reduces projected growth in pension spending as a share of GDP.
• Helps make the state pension system more sustainable for future generations by balancing long retirements with long working lives.

Fiscal impact

• Accelerated pension age increases and ending the triple lock collectively reduce future state pension outlays significantly over the long term.
• Exact fiscal savings depend on mortality projections and labour market participation rates.

Barriers and trade-offs

• Changes to pension age are politically sensitive, especially for cohorts nearing retirement age.
• Ending the triple lock may reduce incomes for existing pensioners relative to wage growth, potentially affecting living standards.
• Requires active communication to maintain trust that reforms are not simply cuts but part of a longer-term intergenerational strategy.

Context
UK universal pensions began in 1908 as a safety net for the elderly poor; expansions through the 20th century gradually widened coverage and generosity. Modern uprating mechanisms (the “triple lock”) have raised benefits sharply since the 2010s, while population ageing continues to drive up spending. Recent legislation has gradually increased pension age from 65 to 67 (from 2026) and to 68 (accelerated to 2032), but demographic trends make further increases in the age threshold necessary for long-term sustainability.

Sources and further reading
DWP: State Pension Age Review 2023 – 30th March, 2023
Resolution Foundation: Revisiting the State Pension age – 1st November 2025
Fidelity International: How Quickly Will UK Pension Ages Rise – 25th August, 2025

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Automatically taper work-related benefits

Policy idea
Introduce a tapered benefit support model that increases initial benefit levels for new claimants and gradually reduces payments over time to incentivise movement into employment or training while providing short-term financial stability. This is emotive stuff. Radical changes are needed. We must think the currently unthinkable if the British state is not to accelerate its decline in to fundamental insolvency.

Problem this addresses

• Long-term benefit dependency discourages labour market re-entry in some cases.
• Universal Credit’s design has produced extended receipt for a substantial group without linked support to transition into work.
• Current welfare structures lack dynamic incentives that balance adequate short-term support with longer-term self-sufficiency.

Proposal

• Increase all benefit payments related to employment status by 50 % for the first 3 months of a new claim.
• Taper payments monthly from months 4–24 at a standard rate (e.g. 7 % per month), reducing to a lower baseline by month 24.
• Existing recipients are placed on the taper schedule based on tenure but with a maximum ‘fair warning’ entry point of month 6 starting-point.

Why this matters

• Higher initial payments provide stability during transitions into work or training.
• A clear taper schedule gives incentives to engage with employment support, training or job search.
• Tapering smooths benefit cliffs that can otherwise deter attempts to increase income.

Estimated impact

• A taper could reduce total spending on long benefit claims by an estimated ~16 % over two years, while encouraging earlier labour market engagement.

Implementation / next steps

• Amend Universal Credit regulations to define the taper schedule and eligibility windows.
• Work with the Department for Work and Pensions to align Jobcentre support and work coaches with taper incentives.
• Introduce evaluation metrics and reporting to adjust parameters based on early outcomes.

Barriers / trade-offs

• Critics may argue that lower long-run payments could harm vulnerable claimants — especially those unable to work due to disability, care responsibilities or structural labour market barriers (e.g., NEET populations with complex needs).
• Taper design risks unintended consequences if not paired with job support, mental health services and skills pathways.
• Benefit complexity could increase administrative overhead.

Context
Universal Credit replaced multiple overlapping benefits in the 2010s, but the ongoing roll-out and periodic reforms have produced mixed outcomes for work incentives and living standards. The dynamic incentives the proposed taper would implement replace the historically static welfare structure that militates against structural intervention.

Sources and further reading
The most recent amendments to the Universal Credit regime were contained in the Universal Credit Act 2025 which increased the standard allowance above inflation annually until 2030, while reducing and freezing the health element (LCWRA) for new claimants. These changes have created a two-tiered system, and shifted assessment for disability support towards the PIP (Personal Independence Payment) process. Mostly going in directions that will make Universal Credit less homogeneous, but pulling a larger proportion of the population in to long-term benefit dependency, creating a more distinctive “benefit class” with higher “cliff edges” for claimants to overcome to exit welfare dependency.

However, from a distinctively pro-welfare position, the New Economics Foundation produced a comprehensive analysis of the impact of the then-proposed 2025 benefit changes in their report “The true scale and impact of benefit cuts for ill and disabled people” published on 31st March, 2025.

Meanwhile Edwin Latimer, Matthew Oulton and Tom Waters produced a more benefit-sceptical report on the Government’s then-proposed benefit changes for the Institute for Fiscal Studies in their snappily-entitled “The government’s proposed reforms to health-related benefits: incomes, insurance and incentives” report which you may download a PDF copy of here.

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