The proposal by Universities UK (UUK) to scrap employer National Insurance (NI) payments for under-25s would cost as much as £7 billion annually but would do little to help university leavers, tax experts have said.

The recommendation to exempt under-25s from NI is one of the main proposals of UUK’s , which promised to provide work-based learning for every undergraduate in England by 2035. Enacting it would “turn the dial on graduate recruitment”, the plan explained, citing evidence from an opinion poll of employers about whether an NI cut would encourage them to hire graduates.

“Government should engage meaningfully with the higher education and business community in the run-up to the Autumn Budget to implement policies that address the cost of hiring entry-level graduates and support NEETs [those not in education, employment or training],” said the plan, published on 10 September.

The proposal followed extensive consultation with business and employers, and the jobs road map has been officially endorsed by the British Chambers of Commerce.

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Jacqui Smith, the skills minister, expressed her support for the road map at UUK’s annual conference at Nottingham Trent University on 10 September, although she did not refer to the NI cut proposal in her keynote speech.

The uncosted National Insurance break for all employees under 25 earning less than £50,270 has, however, been criticised by Tax Policy Associates, an independent tax policy thinktank founded by Dan Neidle, who is known for his work on stopping tax avoidance.

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In its analysis, also , the thinktank ran estimates that the policy would cost £6 billion to £7 billion and would affect about 2.2 million existing employees, for whom employers paid an average each of £3,300 a year. A second simulation, using household survey data, puts the cost at £6.3 billion.

At present, UK Research and Innovation’s main university-facing research councils receive about £7.4 billion a year, with Innovate UK receiving a further £1 billion a year.

Asking the question “Would it create jobs?”, Tax Policy Associates explained that similar tax or National Insurance relief schemes in the UK, such as cutting NI for under-21s, had not made a significant impact on workforce planning or hiring decisions.

One HMRC study showed that 80 per cent of employers “simply absorbed the saving” and “only 2 per cent mentioned the relief as a reason” for taking on more younger workers, the new analysis adds.

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Evidence from a “very similar relief” scheme in Sweden, which started in 2007 and cut employer payroll tax from 31 per cent to 15 per cent for everyone under 26, “came to an even bleaker conclusion”, said the thinktank’s analysis, “”.

One analysis showed that the Swedish scheme “raised employment among the young by two to three percentage points, mostly by employers keeping on existing employees (as opposed to making new hires)”, and many of these jobs “will have been displaced from elsewhere”, with unemployment falling in the “favoured age group” but not delivering overall employment gains.

Based on the results of the Swedish experiment, if the £6 billion to £7 billion tax cut were applied in the UK, it would create only 70,000 to 100,000 jobs, “costing £60,000 to £100,000 per job each year”, the study says.

“There are many, many ways that the £6-£7 billion could be employed more efficiently,” the analysis concludes, quoting the Resolution Foundation’s , which said: “Tax cuts such as these are a very expensive way to boost youth employment, with most of the spend simply paid to employers who would have taken on young workers anyway.”

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If the Treasury wanted more “bang for the buck” from a £7 billion tax cut, there are at least 12 policies that would deliver more meaningful GDP gains, Neidle said. “The worst tax cuts get the loudest support. The tax cuts that would do the most good are left with nobody to lobby for them,” it concludes.

In a statement, UUK said its road map “makes the important point that government has a responsibility in this space by creating the right conditions for employers to hire young talent. Extending relief on employer Class 1 National Insurance contributions to under-25s is just one way government could do this, and we would equally support other measures to achieve the same goal.

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“We recognise this proposal carries a cost, but so does the risk of long-term unemployment among young people, which carries a lasting cost to local communities and the wider economy. This is why we join the British Chambers of Commerce in calling for action to support young people into work.”

jack.grove@timeshighereducation.com