The new benefits reforms that could be on way for 16- to 24-year-olds

Britain faces a “generational fault line” in which more than 1.25 million young people could be out of work unless Labour overhauls the welfare, education and health system, the Government’s worklessness tsar has warned.

Alan Milburn, the New Labour-era former minister tasked by Sir Keir Starmer with carrying out an independent review of young people not in employment, education or training (Neet) said that the UK risked a “lost generation” who had never known work.

In an interim report to be published on Thursday, Milburn will outline the causes of the youth joblessness crisis and pave the way for a package of recommended reforms to be unveiled in the autumn.

What is the scale of the problem?

At the end of 2025, 957,000 people aged 16 to 24 in the UK were Neet, representing 12.8 per cent of the age group, or one in eight.

Milburn warns that without urgent action, the number could rise to 1.25 million within five years, or one in six of those in that age group.

At the launch of his report on Thursday, he is expected to say: “Six in 10 have never had a job. Twenty years ago, that figure was closer to four in 10. Detachment is no longer temporary. For too many young people, it is becoming permanent. We are at risk of a lost generation.”

What is driving it?

The interim report will identify a range of factors behind the crisis.

Firstly, there has been a contraction in entry-level jobs, with 1.6 million fewer low and medium-skilled jobs in the economy compared to 20 years ago. Vacancies in hospitality have halved in the last four years alone, apprenticeships starts among young people have fallen by 35 per cent over the last decade, and Milburn says that Saturday jobs have been in “freefall”.

He is expected to say: “The first rung of the career ladder has thinned. For too many young people, it is now simply out of reach. That places them in a hopeless Catch-22 where employers ask for work experience but the opportunities for young people to gain it have narrowed or gone.”

While opportunities in the labour market have decreased, Milburn also accuses the UK of a “whole-system failure”. In 2024-25, for every £1 spent on employment support for young people, about £25 was spent on benefits.

He is expected to say: “This is not a failure of young people. It is a failure of a system stuck in the past. Whether it is education or health or welfare, that system fails to enable their participation in the labour market. Instead, all too often it ends up putting young people on a path to a life not in jobs but on benefits. This should be the priority for the Government. It should be the priority for all of us.”

Milburn argues that the mental health of young people has also deteriorated, with social media and smartphone use partly to blame. However, he says that the diagnosis of conditions like anxiety or depression should not automatically mean people leaving the workforce, and that 84 per cent of Neets want a job or training.

What welfare reforms is he advocating?

Milburn’s reforms will be set out in a full report, which will be published later in the year, likely due in the autumn.

At the top of the list will be an overhaul of the welfare system, particularly health and disability benefits. Milburn has said: “Welfare reform is not an optional extra, it’s a necessity.”

Given that Starmer was forced into a humiliating U-turn on sickness benefit cuts last year because of the opposition of Labour backbenchers, this will be difficult for the Government.

In recent interviews, Milburn has said that ministers went the wrong way about the reforms by framing it about cutting costs. “It’s needed more for moral reasons than for fiscal reasons,” he said.

Milburn has criticised “cliff edges” in the benefits system which mean that those who want to work are sometimes put off by the prospect of losing up to £2,000 a month in benefits.

He is likely to propose a gradual build-up or trial period to work to alleviate the fear that young people could lose all their income if a job does not work out, as well as reforms to the system so that people do not have a perverse financial incentive not to work.

Ministers have already proposed restricting eligibility to universal credit health benefits (known as UC health) for under-22s to tackle high levels of young people out of work. UC health is a means-tested benefit payment for welfare claimants assessed as having limited capability for work due to a health condition or disability.

Any decision to restrict eligibility has been delayed until after Milburn’s full report in the autumn. It could become a reality if the Government is able to demonstrate that any cut would come alongside substantial support measures to help youngsters into employment.

In an interview with The i Paper, Milburn said the welfare system contained “so many perverse disincentives which were almost like they’d been designed to discourage people from going into work”.

His remarks about a rise in young people with mental ill-health, anxiety, depression and neurodiversity suggest he will also likely look to recommend reforms to the welfare system that would encourage them into employment, training or education.

Some of Milburn’s recommendations may influence future plans to overhaul the work capability assessment (WCA), which is used to decide how a health condition or disability affects a person’s ability to work and what benefits they can receive.

What else will he call for?

A key recommendation is likely to be more funding for training and schemes to support young people into work, given the huge disparity Milburn highlights between these programmes and expenditure on benefits.

As well as having a health system which encourages people into work, Milburn has said that employers need to offer “a high level of pastoral care for this cohort of young people living with mental distress”.

There could also be financial incentives for companies to take young people on – last year, The i Paper reported that ministers were looking at tax breaks for employing under-24s.

The Government is already offering six-month subsidised jobs for younger workers who have been on universal credit for 18 months under its “jobs guarantee” with employers such as McDonald’s or John Lewis.

A “youth jobs grant” launching next month will also provide £3,000 to employers for every young person they take on who is aged 18 to 24 and who has been on universal credit and looking for work for six months.

Milburn has also suggested that young people could be used to replace a drop in skilled workers in certain sectors following a fall in migration.