Labour’s policies are harming growth and undermining young people’s job prospects, Sir Tony Blair has warned.

In his most damning intervention to date, the former prime minister’s think tank took aim at a raft of Labour’s flagship policies, criticising decisions to ramp up the minimum wage, National Insurance contributions and add more workers’ rights red tape.

The Tony Blair Institute (TBI), the think tank he runs, said Labour should reverse course on a raft of its flagship labour market policies as the economy struggles and unemployment surges.

The warning comes at a critical time for Sir Keir Starmer, who is under increasin

g pressure from the Left wing of his party in the wake of a humiliating third-place defeat in the Gorton and Denton by-election, which was won by the Green Party.

However, Sir Tony’s think tank cautioned that a raft of Left-wing policies were already putting the brakes on growth. It will be seen as a critical intervention before the Spring Forecast on Tuesday, intended to stop Labour drifting further Left.

Sir Tony introduced the minimum wage in his first term of office. However, his think tank, which the former Labour leader personally runs, said excessive increases in the rate now risked preventing young people from getting their first job.

“The risk is that further rises – including raising the youth rate for under-21s to match the over-21s rate – will discourage firms from taking a chance on new employees, particularly younger workers,” said a new report from the TBI.

“Set too high, a wage floor can erode the first rung on the career ladder.”

The warning comes after the unemployment rate for 16 to 24-year-olds rose to 16.1pc, a higher level than anything suffered in the pandemic and a rate not seen for more than a decade.

Instead of automatically ramping up the minimum wage every year, Sir Tony’s think tank said the Government should tell the Low Pay Commission to consider the state of the jobs market and “slow, pause or reverse increases … during an economic downturn or when rising taxes and tighter employment regulation weaken labour market conditions”.

Sir Tony’s institute also urged Sir Keir to change course on Labour’s overhaul of workers’ rights, which would greatly strengthen union powers.

“These [minimum wage] rises will occur at the same time as firms have to contend with the impact of the Employment Rights Act – which will tighten rules on hours, enforcement and compliance – and further restrict their ability to adapt,” the report said.

The wave of taxes and restrictions on employment comes at just the wrong moment as businesses and the wider economy need to become more agile to cope with the rise of AI.

“High and inflexible dismissal costs are now a material barrier to experimentation and scale in the UK’s fastest-growing sectors,” the TBI warned.

It said this was “a key reason [the UK] continues to lag behind [the US] in attracting and scaling dynamic firms”.

Tom Smith, the director of economic policy at the TBI, said: “Reigniting growth is the defining challenge facing the UK.

“Too often, growth is treated as one objective among many, rather than the engine of rising living standards and national renewal. A reset in favour of dynamism is needed.

“Restoring dynamism must sit at the heart of the Government’s growth mission, backed by reforms to labour markets, finance and regulation that make it easier for businesses to hire, invest and grow. It is the difference between an economy fit only for the past and one that can thrive in tomorrow’s world.”

Sir Tony still has considerable influence in Labour circles, despite the damage wrought on the New Labour brand by the latest disgrace of Lord Mandelson. The pair were key allies in the 1990s and Lord Mandelson’s first two resignations were forced by scandals in the Blair era.

The report’s publication comes as Rachel Reeves, the Chancellor, prepares to give her response on Tuesday to the latest economic forecasts from the Office for Budget Responsibility. She is not expected to announce any tax or spending changes despite pressure to ease the mounting youth unemployment crisis.

Sir Mel Stride, the shadow chancellor, said Sir Tony’s warning was evidence the economy was heading in the wrong direction.

“When even Tony Blair’s Institute is warning that Britain has lost its economic dynamism, it’s clear the Chancellor has run out of road,” he said.

“Labour keep talking up green shoots but people can feel the truth in their pockets. We’re getting poorer under Rachel Reeves and Labour. GDP per person is going backwards and the Bank of England has downgraded the outlook for this year and next.”

The TBI report called for tax reform to encourage investment in research and development and for more liberal planning laws to enable rapid investment in AI, energy and digital infrastructure projects.

A Government spokesman said: “We are delivering a stronger, more secure economy: easing the cost of living, bringing down national debt and unlocking growth and investment right across the country.

“Through backing AI, speeding up planning decisions, investing in innovation and skills, and attracting top global talent, we will continue to ensure the UK can lead in the industries of the future.”

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