Research and analysis

Executive summary

Published 19 October 2023

1. Introduction

HM Revenue and Customs (HMRC) commissioned Kantar Public and the National Institute of Economic and Social Research (NIESR) to conduct an evaluation of National Insurance contributions (NICs) reliefs for employees under 21 and apprentices under 25. The evaluation involved a telephone survey with employers that claimed relief, as well as employers that did not claim relief but were eligible to do so. Themes emerging from the survey were further explored in follow-up qualitative depth interviews. Econometric analysis using HMRC Real Time Information (RTI) and Office for National Statistics (ONS) Labour Force Survey (LFS) data supplemented findings at a population level.

The main objective of the evaluation was to measure the impact of NICs relief on hiring young people and apprentices. The evaluation explored potential distortions to the labour market, whether the incentives were proportional and appropriate, as well as experiences when claiming relief.

2. Awareness of claiming reliefs among employers

The process of claiming relief was generally considered to be easy, which meant some claimants were unaware they were claiming at all. Overall, 44% of claimant employers identified in HMRC administrative data were aware that they were claiming one type of relief. The level of awareness was similar across employers with employees under 21 and employers with apprentices under 25.

Employer experiences expressed in the qualitative interviews highlighted links between awareness and the method used to deal with payroll. The use of payroll software contributed to unawareness as claimants did not need to actively engage with the relief. Furthermore, employers that relied on a tax agent for payroll tasks were often unaware of their claims because their agent handled everything. In the survey, employers that were aware they were claiming relief were more likely to perform all PAYE tasks in-house (66% compared with 54% who did not do all PAYE tasks in-house).

Payroll software, and to a lesser extent use of a tax agent, were also key in making the claim easy for the employer. The qualitative interviews found that when entering a new employee, payroll software prompted them for relevant details and automatically applied the relief. Around half of employers aware they were claiming, heard of the relief through either their payroll software (26%) or through their agent (22%).

3. Impact of the reliefs

The evaluation found that NICs relief had limited impact on employers. In the survey more than half of employers felt the relief had had no direct impact on the business (57%). Findings from the qualitative interviews echoed the survey findings, where employers felt that the savings were not enough to substantially reduce operating costs. In the survey, most employers said they absorbed the savings from the reliefs into general business revenues (72%).

Half of all employers claiming relief (50%) said that it had helped their business in some way. Around a third of employers claiming relief for apprentices under 25 said it had led to an increase in salaries for apprentices (34%), more opportunities for them to progress (31%) and more training opportunities (32%). Among employers of young people under 21, 15% said the relief had led to an increase in their salaries. However, econometric analysis of RTI and LFS data indicated little overall impact on the pay of employees under 21 since the reliefs were introduced.

4. Proportionality of the reliefs

The evaluation found evidence of deadweight, that is young people and apprentices would have still been employed in the absence of NICs relief. The majority of employers claiming relief for employees under 21 (89%) and relief for apprentices under 25 (96%) said they still would have hired these employees without NICs relief. Additionally, most claimants said they would hire the same number of young people in the future if the value of the relief increased (67%) or decreased (81%).

Findings from the qualitative depth interviews suggested NICs relief did not influence the hiring of young people or apprentices. In particular, employers expressed a reluctance to base hiring decisions on age, as they felt doing so might contravene employment law.

However, the evaluation did find evidence of a modest impact on overall employment of young people. Econometric analysis indicated an increase in the employment rate of under 21s of between 2 to 3 percentage points, compared with young people who were just above the age threshold for relief eligibility. However, caution should be applied in fully attributing such effects to the relief.

5. Appropriateness and experiences of claiming the reliefs

The evaluation found evidence that the delivery mechanism used to incentivise youth employment was appropriate. However, 3 in 10 claimants (29%) said they would hire more young people if the delivery mechanism changed to a grant or lump sum. Non-claimants were more likely to say they would hire more young people if the delivery mechanism changed (38%).

Employers were positive about the experience of claiming. Three-quarters of employers claiming relief for employees under 21 (77%) and employers claiming relief for apprentices under 25 (75%) felt it was easy to claim.

6. Differences between the reliefs

The evaluation found only slight differences in the experiences of employers claiming relief for employees under 21 and employers that claimed for apprentices under 25. Claiming NICs relief for apprentices under 25 was found to have a modest impact on salary, progression and training opportunities for young apprentices in the business. Employers claiming relief for apprentices were also more likely to report the relief had helped their business (59%) compared with employers claiming relief for employees under 21 (48%).