Milburn report warns youth unemployment crisis risks £125bn annual economic hit

A landmark government-commissioned report led by Alan Milburn has warned that the UK economy faces an annual loss of £125bn due to rising youth unemployment, describing the situation as a risk of a “lost generation”. The review, released on Thursday, highlights a critical juncture in public policy as the number of young people aged 16 to 24 not in education, employment, or training (Neet) has risen to 1,012,000. According to figures from the Office for National Statistics for the three months to March, this figure breaches the one million mark for the first time since 2013.

Milburn, the former Labour health secretary, urged a fundamental reset of policy across schools, the health service, and the welfare state. The report estimates that the cumulative annual cost to the country of nearly one million Neet young people is £125bn, a sum exceeding the entire annual budget for education. The review argues that the current position is no longer merely unaffordable but unsustainable, warning that the longer young people remain outside work or learning, the more difficult and expensive it becomes to reintegrate them into the labour market.

The financial implications for public finances are stark. The report calculates that the average lifetime loss in earnings for a young person out of work, education, or training between the ages of 18 and 24 is equivalent to £52,000 a year. Furthermore, the lifetime public finance impact of a young person being Neet during this period is estimated at £29,000 on average. If every Neet young person aged 18 to 24 had been in work last year, the report found it would have contributed an additional £38bn to UK GDP and significantly reduced the Treasury’s benefits bill.

Current welfare spending patterns were identified as a key driver of inactivity. The government spends approximately £8.1bn annually on benefits for young people, with more than half (£4.4bn) allocated to Neets. The report suggests that £3.2bn of this expenditure could have been avoided if Neet young people had been in work and earning above earnings thresholds. Milburn described the welfare state as “exacerbating inactivity,” arguing that new work programmes alone would fail to address these deeper-rooted structural problems.

Structural barriers in the labour market were also scrutinised. The report identifies minimum wage hikes and the Workers’ Rights Bill as factors potentially hindering youth hiring, particularly in low-margin sectors such as retail and hospitality. Without intervention, the number of Neets could rise by 25% to 1.25 million by the early 2030s. These warnings come as overall unemployment in Britain reaches its highest levels since the outbreak of the Covid pandemic, with young people bearing the brunt of economic downturns and tax increases.