The former Labour minister Alan Milburn has launched a blistering attack on the government’s record on youth unemployment, denouncing the benefit bill as “shameful” as jobless figures for 16-to-24-year-olds surged to 876,000. In a report for the Social Mobility Commission, Milburn warns that the UK is “sleepwalking into a lost generation” as the cost of benefits for young people not in education, employment, or training (Neets) now stands at £12bn a year.
Milburn, who chaired the commission until last year, argues that the current system is failing to incentivise work or training. “The benefit bill for Neets is a scandal. We are spending billions on a subsidy for idleness when we should be investing in skills and jobs,” he writes. The figures show that one in eight young people are now out of work, a ratio that has barely improved since the financial crisis.
The Treasury, however, is likely to view Milburn’s recommendations with caution. His proposals include scrapping the automatic entitlement to housing benefit for under-21s and tying jobseeker’s allowance to mandatory training schemes. While these suggestions may appeal to fiscal hawks, the initial outlay required to create new apprenticeship places and re-enter the labour market for the long-term unemployed would add to the deficit in the short term.
Markets have already priced in a degree of fiscal loosening in the upcoming Autumn Statement. Gilt yields have edged higher this week as traders brace for a borrowing splurge. The yield on 10-year gilts rose to 1.45% on Wednesday, up 10 basis points from last week. Capital flight remains a risk; if foreign investors baulk at UK fiscal discipline, sterling could come under pressure.
Milburn’s report also highlights the regional disparities in youth unemployment. In parts of the North East, nearly one in five young people are out of work, compared with less than one in ten in the South East. This is a reminder that the “levelling up” agenda remains aspirational rather than operational. Without targeted investment, the gap will only widen.
From a market perspective, the key question is whether the Chancellor will take a sledgehammer to youth benefits or opt for a more incremental approach. A radical overhaul could be perceived as pro-growth if it boosts labour market flexibility, but it carries political risk. The Labour Party, which commissioned the report, is likely to use it as a stick to beat the government, while the Conservative benches will be wary of appearing heartless.
Ultimately, the youth unemployment figure is a leading indicator of long-term economic scarring. The CBI has warned that persistent inactivity among the young will dent potential growth. If Milburn’s recommendations are implemented, expect a temporary spike in the deficit followed by a structural improvement in the public finances. That is the theory. But as any chief financial officer knows, the transition from theory to practice is where value is lost.
The bottom line: the UK cannot afford to ignore its Neets. The human cost is matched by the fiscal cost. But the path from benefit dependency to gainful employment is littered with perverse incentives. Tread carefully.
