The Hidden Subsidy Pricing Young Britons Out of Work

The government has recently announced another attempt to tackle youth unemployment which, unfortunately, basic economics suggests is doomed to fail. It is time to ask: should the UK government be more racist?

Racism is very bad so the answer is no. What the UK government should do is tilt the market in favour of her citizens – of all and every colour. Critics will claim this is racism, this is dishonest, though dishonest for an interesting purpose.

Those who shop in supermarkets will have noticed that large parts of the lower end of the labour market have seen UK citizens displaced by relatively recent immigrants. Whether kitchen staff, supermarkets, or security there has been a dramatic and rapid shift. HMRC payroll data show that between December 2024 and December 2025, payrolled employments of UK nationals fell by 333,400, EU nationals fell by 74,000, and non-EU nationals rose by 238,200. Non-UK nationals now hold 20% of payrolled employments, up from 12% in 2014. India and Nigeria dominate the numbers in part because both are large countries.

Younger people talk about how difficult it is to find even basic work and jobs that would have been done by teenagers are now done by middle aged immigrants. Understanding why this has happened and the long term costs are key to any solution.

Simply the youth of today are spoilt and don’t want to work. A recent newspaper report covered a man who had moved to the UK and worked in a small shop. He did not receive a formal wage but was allowed to sleep behind the till and to eat any food past the expiry date. In short, our kids are too entitled. A steady stream of stories cover the kickbacks that immigrants pay in order to get and keep a job. Ask a young English man or woman to pay half of their wage as a bribe and they complain.

Two populations, two sets of incentives

From a more technical perspective we can simplify this debate into two populations. A domestic population and a non-domestic. The domestic population can either get paid employment or go into some form of government support scheme. Readers will be familiar with various forms of non-employment non-unemployment. Disability benefits are much more freely granted than previously and after-tax disposable income can be similar to working on minimum wage. Similarly a student maintenance loan can be up to £14,135 a year (2026/27, London, living away from home); loans are tax free sums. A loan that is unlikely to be repaid is a gift. We have many forms of unemployment and governments of all colours have expanded them rather than face underlying problems.

For the domestic population we have made their alternatives to employment more attractive so we should expect a reduced labour force attachment rate. There are additional quality of work factors that magnify this problem.

The domestic population are in competition with the non-domestic population – what has happened for that side of the equation? The non-domestic population are largely coming from very poor countries – Indian GDP per capita is around USD 2,800 and Nigerian around USD 1,200 (IMF, 2025). The opportunity to access Western wages is highly attractive. Even if some of this premium is paid away in “fees” the difference is enormous. That however undercounts the compensation. Working in the UK is a pathway to ILR and then citizenship both of which are highly valuable.

The £810,000 bonus

An example shows just how strong the pull factor can be. The infamous Boriswave was an acceleration of pre-existing policy not something new. It was sold as controlling inflation and ensuring staffing for care homes. Ignoring whether it solved either of these issues, was it financially wise? Whilst this specific path has been closed many similar ones remain. A mid-fifties lady could come to the UK and work for 5 years thus obtaining ILR and then citizenship. At retirement whilst she would have very few years of National Insurance contributions there is the parallel Pension Credit system which pays only £3.30 a week less than the full new State Pension (£238.00 against £241.30 in 2026/27) and is paid so long as you are poor. This is worth c£12,400 p.a. and will be claimed for approximately 25 years. In addition they will be entitled to Housing Benefit, worth c£12,700 p.a. at 2026/27 rates, again for life. Medical costs are concentrated at late and end of life: NHS spending on the over-65s runs at roughly 2.4 times the average, worth an additional c£140k over retirement. Having minimal savings and being on benefits passports a series of additional benefits such as council tax reduction, worth a further c£1,900 p.a. on a typical bill. As these are all real (inflation-proofed) benefits we can calculate lifetime value by taking a simple sum and estimate the value of gaining ILR or UK citizenship at c£810k to this person. As the entitlement to receive this value has been gained by working for 5 years it can be seen as adding an incremental, tax free, £162k p.a. to their normal wage. With domestic care workers earning £26k p.a. it is unsurprising that non-domestic workers were so keen to displace them when they were being offered 7 times as much (12.6x once you adjust for tax: a British worker would need a salary of £327k to take home the same).

This was unlikely to be a good deal for the UK taxpayer. To the extent non-domestic hiring displaces domestic into unemployment then there is an argument to also count the cost of any government support they now receive.

Whilst qualifying periods are being discussed, even a doubling to 10 years still makes the implicit wage top-up c£81k p.a. (tax free). This also ignores the ability to bring family members and any money the state might spend on them – e.g. someone who comes with 3 children will have c24k spent on their education each year.

Some claim that we need foreigners to do the jobs that British people won’t do. This manages to be simultaneously ignorant, insulting, and racist. All of the “dirty” jobs referred to have been done historically in the UK by British people and that continues to be the case in areas that are still almost entirely British. It is insulting as the speaker is looking down on those who do these jobs. I don’t look down on the nurse helping my grandparents even if parts of that job are ones that I would not enjoy. I don’t look down on bin men – watch them next time and they really hustle. It is racist as the implication is that foreigners are somehow lesser people and it is fine for them to do these jobs but it would be beneath natives.

We have increased subsidies for domestic workers not being employed, and we provide a vast subsidy to non-domestic workers who take jobs in the UK.

The cultural factors

These are the pure economic factors. Cultural factors make the situation even worse.

Working in the local event car park with your mates from school and having a chance to chat up some girls is fine. Working in the same car park with middle aged Africans is ok, but they can’t compete with Lucy from History.

The status of a job is diminished when it becomes seen as something that only foreigners do.

Some people in the world show a strong preference for their own people when hiring. Even if there are superficial limitations a supervisor can achieve these goals by: scheduling people into anti-social work patterns; by speaking in their home language and making it a very lonely shift for the domestic worker (looking at you Italians); etc.

What the government is offering

The UK government’s new strategy has two parts. Monetary incentives and training.

The monetary incentives on offer are de minimis compared to the subsidy offered to non-domestic and will not shift the calculus. Similarly the value of the improved training is negligible compared to the other factors we have identified.

Fixing the economics

A proper solution would fix the economics. So long as work in the UK is a path to unlocking staggering financial wealth the competition from non-domestic employees will frustrate any policy. What changes might fix the economics?

Some countries explicitly recognise that the bottom 10% of the labour force (either due to inexperience or capacity) can not compete with the bottom 50% of the global labour force. The solution is a fixed sum levy per non-domestic employee. If hiring a non-domestic triggers a 5k tax then identifying and training domestic people becomes extremely attractive – Singapore uses a system along these lines. The funds raised can also be used to reduce the tax burden on hiring minimum wage staff – recent tax rises have been identified as a deterrent to hiring – giving a double win.

Ultimately the UK needs to decide if it makes sense to grant extremely valuable citizenship so freely. The world has rich countries and poor countries. Some people find it morally offensive that whether you get to live in a rich country is determined by an “accident of birth”. If that is your morality then granting citizenship is welfare enhancing. Granting citizenship to the poorest most desperate is more welfare enhancing than granting it to the top 1% or to those from countries with similar gdp/capita. Whilst governments of the past thirty years have not publicly declared that this is the core logic on which they operate we can observe how the system functions. We can also look at unintended moments of candour such as Lord O’Donnell, then Cabinet Secretary, in 2011: “When I was at the Treasury I argued for the most open door possible to immigration … I think it’s my job to maximise global welfare not national welfare.” (as reported by David Goodhart). We do not take a position here on whether that is wise, but if that is the fundamental logic which drives policy then it should be publicly debated and democratic consent properly obtained.

What gains could we see from such a policy?

The lifetime costs of not joining the workforce are tremendous. The Milburn Review for the DWP, “Young People and Work” (interim report, May 2026), finds that 45% of today’s 24-year-old NEETs have never had a job and that they stand to lose up to £300k of lifetime earnings even if they re-enter the labour market. If they don’t it will be worse. The psychological impact of not having a purpose in life adds to the bill – perhaps we should not be surprised at a mental health crisis if our young find it hard to become employed and feel useful.

I would argue that a good society finds a role for everyone and a policy that tightens the labour market at the bottom is the definition of social justice.

Fraud will be endemic in any system where the state allows private actors to hand out million pound prizes. Whether it is the carwash or kebab shop importing “skilled” workers, or the bottom tier university selling access to the UK labour market. Fraud is both a direct cost and an attack on morale – why should I do the right thing when I can see those cheating the system being handsomely rewarded?

What holds government back?

This prize is so easily seized what holds our government back?

External factors – many countries have a systemic youth unemployment problem and exporting this provides both social stability and material remittance income. The UK bizarrely allows non-domestic families who are net beneficiaries from the state (i.e. money spent on them and subsidies provided exceed the tax paid) to make remittances home? Stopping this flow of remittance money would upset important diplomatic counterparties.

Internal factors – proposing any nationality based policy will be attacked as an implicitly racist policy. This is unfair but public debate currently functions in this way. This criticism is unintentionally funny as the government is happy to run explicitly racist policies: the RAF had a ban on promoting white candidates; numerous universities have colour based access days and contextual offers; we have a National Black Police Association; or the case of Henry Nowak where officers training and incentives made them treat the allegation of hurty words as more urgent than someone saying they had just been stabbed. The only comment here is that our policy recommendation is to distinguish between citizen and non-citizen, any consideration of colour would be wrong.

If our children matter, what else would change?

If we decide that our children are important then what else would we change?

Student loans have a high interest rate, a low attachment point, and a steep incremental tax. This is all necessary to recover the cost of the loans. Loans are made to different populations regardless of risk. We allow some foreigners to access the student loan system despite having very weak ability to collect. We allow very weak students to have loans – a review considered introducing a 2E minimum but this was rejected. We allow older students who have dreamed of going to university and having the chance to study, but who will graduate with so little time in the labour force that they will never repay. Many of these loans are gifts to show that we are nice people. I would argue that we are not so nice as we do not pay for this ourself, instead we load the cost onto the studious, hard working graduate. A stricter criteria on eligibility would improve collection and allow cheaper loans, allow repayment to be gentler and use a higher salary threshold.

Immigration drives up demand for housing. In a static housing market the winners are the owners of real estate, specifically those who rent it out, the losers are those who are starting out in life and have to pay rent or face more expensive purchases. In economics it is normal to put the cost on the party who drives that cost. A rent tax of 33% paid by landlords who rent to non-domestics would make landlords indifferent to renting at 1500 to non-domestic, or at 1000 to domestic. This would remove the windfall gain that landlords have seen from high immigration (taxing windfalls is good). It would dramatically lower rents faced by domestic young people – back to the unaffected level. As rent is the highest cost and is paid from after tax income this would be a tremendous boost to welfare of young working adults. Many countries have real estate surtaxes targeting foreigners for precisely the reasons laid out.

Children can be annoying but our adult children do not deserve to face unlimited competition from the entire world. They do not deserve to have the competition subsidised to a degree that makes winning impossible. They do not deserve to have to pay for our “generosity” in letting anyone go to university (or indirectly many be professors). They deserve to have easier access to their own home.

The UK government pretends to care about youth unemployment but ignores basic economics. Economics almost always wins. If we really want to be kind to our children then we need to have an honest discussion about the financial incentives, we need to explicitly prefer citizens, and we need to be more deliberate on how much we gift to non-citizens.