Labour’s inflation-busting minimum wage hikes are partly to blame for the UK’s ‘lost generation’ of jobless young people, according to the author of a damning new report.

Ex-Cabinet minister Alan Milburn said the cost to the country of the growing number of young people classed as Neets – not in education, employment or training – will rise to £125billion a year, which is more than the Government spends on education.

His long-awaited review came as new figures from the Office for National Statistics revealed that the number of Neets has now passed one million.

Mr Milburn branded it a ‘moral crisis’ that one in six youths aged 16-25 will be on out-of-work benefits by the end of the decade, and said it was ‘probably the most significant challenge facing our country today’.

He found that Britain was an outlier in the EU with only Romania recording a higher youth Neet rate.

Mr Milburn, a former Labour health secretary, backed Tony Blair’s criticism of Government policies that have been blamed for making it harder for employers to hire young people.

In a scathing attack on Labour’s policy agenda this week, the ex-prime minister accused Keir Starmer’s administration of lacking a ‘coherent plan’ and holding back business. 

Sir Tony singled out measures including new workers’ rights laws and the above-inflation uplift to the minimum wage.

Mr Milburn suggested ministers should reconsider these policies as he called for a ‘whole system reset’ on education, welfare and health policy to get young people into work.

Ex-Cabinet minister Alan Milburn said the cost to the country of the growing number of young people being classed as Neets – not in education, employment or training – was more than the Government spends on education each year 

Asked if he agreed that Labour had created a ‘climate of difficulty’ for businesses to create entry-level jobs, Mr Milburn told Times Radio: ‘Well, certainly every employer that we spoke to raised these issues as real concerns, the minimum wage.

‘No employer really wants to be paying poverty wages to young people, that’s not what you come across.

‘But there is, particularly in low-margin sectors of the economy, like retail and hospitality, there is no doubt that these changes have had an impact.

‘So that is something the Government really needs to think about. If the priority is to create young people’s jobs, then it’s got to create the right conditions for employers to do so.’

Prior to the publication of Mr Milburn’s report, the ONS said the number of people aged between 16 and 24 and not in employment, education or training rose to 1.01 million in the three months from January to March.

It is the highest level since the three months to December 2013, when the figures were calculated with a different methodology, and also represent a 55,000 increase compared with the previous quarter.

Over the past decade, Mr Milburn found that the proportion of Neets who are suffering from a health condition that prevents them from working has increased by 70per cent.

The proportion of disabled young people who are Neet citing mental health as their primary condition has risen from a quarter in 2011 to nearly half in 2025.

The data showed that 613,000 of these young people were considered economically inactive – meaning they are unable to work or not seeking work – over the period, marking a record high.

Speaking at a press conference in north London this morning as he published his review, Mr Milburn said of the number of Neets passing the one million mark: ‘It’s actually more than a statistic – it’s a warning.

‘A warning that far too many people are reaching adulthood only to find the door to opportunity closed.’ 

Introducing his report at a youth employment hub, he added: ‘Being Neet has a long-term scarring impact, cost for their confidence, cost for their health, cost for their future income.

‘For those who spend the whole period from 18 to 24 years of age outside of education and work, as about a quarter of 24-year-old Neets do, the lifetime loss can approach £300,000.

‘That is not an abstract number, it’s a deposit never saved, a home never bought, a pension never built, the hope of a good life never realised.

‘So this is more than an economic crisis, it is a moral one. So the question today is no longer whether the current position is somehow unfortunate, it is whether it is sustainable. My answer is no, it is not.

‘As a growing older generation becomes increasingly reliant on the next generation to sustain it, every young person has to have more opportunities to learn or earn and to get a job.

‘The problem is that for too many young people, opportunities are not growing, they’re shrinking.’

In his report, Mr Milburn wrote: ‘Health is no longer a background factor in youth disengagement – it is central.

‘Ill-health is now a primary driver of who becomes Neet and who stays Neet.

‘For the first time in perhaps two centuries, changes in health, especially mental health, are impeding economic growth and causing a contraction in the supply of labour.’

Mr Milburn said that the ‘explosion’ in mental health conditions had been in anxiety and depression as opposed to serious mental illness.

He added the growth of health concerns preventing young people working had changed the profile of Neets.

They are now more likely to be economically inactive than unemployed, at 57 per cent versus 43 per cent – a reversal of the situation 10 years ago.

He called for reform of the ‘fit note’ system, arguing that the system should be asking what young people can do rather than signing them off work.

Mr Milburn said most young people wanted jobs and denied they were ‘snowflakes’ but did say employers were required to offer them more support.

He highlighted the case of one large employer who said they had hired a full-time social worker to support younger staff.

‘Young people are different from those who came before them. Not worse. Not lazier. Not less intelligent,’ he said.

But he added: ‘They present with higher levels of anxiety and depression. They are more likely to disclose health conditions. They expect flexibility. They value purpose. They are less willing to tolerate poor treatment.’

He found that employers repeatedly raised the issue of the above-inflation increase in the minimum wage for not incentivising them to hire young workers.

The Tories have warned that Labour policies – including the National Insurance increase for employers and new workers’ rights laws – are making it too expensive to hire young workers.

But Mr Milburn also said that the issues pre-dated tax changes and pointed to figures suggesting they were unlikely to have affected youth employment.

He found that despite stereotypes, many young people had good grades – nearly 30per cent have good GCSEs and 15per cent have a degree – but were still not able to get jobs.

Mr Milburn branded it a ‘moral crisis’ that one in six youths aged 16-25 will be on out-of-work benefits by the end of the decade

The report also found the number of jobs for young people on the labour market has decreased despite employment overall increasing.

Young people once made up one in seven workers but that figure is now more like one in nine, the report said.

He found that the Saturday job was not the route into work it had once been and that entry-level roles have become less plentiful and more demanding.

Outside education, young people are now less likely to be in work than at any point in the past decade, the report warned.

The report criticised the welfare system, finding that less than half of the total £8.1 billion currently spent on key benefits for young people came with any requirement to find work.

Last year, for every £1 that DWP spent on employment support for young people, around £25 was spent on benefits for young people, it added.

It also said the numbers claiming benefits will continue to rise, saying that if current trends continue, one in 20 of today’s five-year-olds will be on incapacity benefit at 22 – more than one child in every class.

This could mean that the Neet rate could increase to over 16 per cent or more than 1.25 million young people not fully participating in society within five years.

Among the many shocking statistics in the report is that of those who first claimed a health and disability benefit aged 16 to 24, almost half are not in work or education fifteen years later.

‘I heard young people describe applying for dozens, sometimes hundreds, of jobs and hearing nothing back,’ he wrote.

‘I heard about interviews followed by silence, automated rejections months later, and entry-level jobs that somehow required previous experience.

‘That is not a failure of young people, but a failure of a system stuck in the past.’

Mr Milburn’s initial report examines the causes of young people being out of work. A report later this autumn will suggest remedies.

Work and Pensions Secretary Pat McFadden has previously said the impact of youth unemployment could scar people for the rest of their lives, branding it a ‘a quiet crisis, a ticking timebomb, which risks their future working lives’.

It was reported he will announce plans for 300,000 extra work experience placements over the next three years, with the DWP saying the Government is keen to ‘give every young person the best start in their career’.

Mr McFadden said: ‘I commissioned this report because we cannot afford to lose a generation of young people, and I welcome Alan Milburn’s vital work which lays bare the scale of the challenge and the root causes of youth unemployment we now need to confront.’

He pledged to ‘work across Government and with employers, charities and young people to drive real change, so more young people are earning or learning, not left behind’.