Milburn review will call on Burnham to find billions more for youth employment

Former minister's report will add to pressure on prime minister over plans for welfare reform and Neets

Andy Burnham will need to find billions of pounds more to fund employment schemes if he wants to get young people back to work, an official review will say this month, piling pressure on the prime minister over his plans for welfare reform.

Former Labour cabinet minister Alan Milburn will recommend "increased and sustained investment at scale" in schemes to help the roughly 1mn young people not in education, employment or training secure jobs, according to people familiar with his government-commissioned report.

Countries with better records on youth participation spend three or four times as much proportionally as the £3.7bn a year that Britain devotes to employment support, Milburn's report will say, implying a multibillion-pound increase.

The former social mobility tsar will also recommend a "youth test" for policy, under which every Whitehall department would have to consider the impact on young people of new taxes, spending or regulation, the people said.

After criticism from businesses that rises in employer national insurance contributions and the minimum wage have hit hiring, Milburn will argue that such a test would "stop government imposing new costs or regulatory burdens without understanding the effect on youth participation".

The demand for significant extra resources will add to the dilemma facing the prime minister. He has vowed to cut welfare spending but said he wants to do it by supporting so-called Neets as he seeks to keep restive Labour MPs on side.

After the Budget last week, John Healey's interview round was dominated by confusion over cuts to welfare -- plans for which last year prompted a rebellion by Labour MPs that severely damaged Sir Keir Starmer's authority.

Healey initially promised to "bring the benefits bill down", but was later forced to clarify he had no plans to do so before the next general election and had not set a "timetable" to reduce spending.

He faced criticism from the Conservatives for lack of action in the Budget to curb welfare spending, which the Office for Budget Responsibility said was increasing by £16bn each year, driven by a rise in sickness benefits.

Healey promised to set out a plan for reform after the publication of Milburn's report, which the FT revealed will recommend cuts to sickness benefits for people aged between 16 and 24 to fund more intensive job and health support.

An ally of Healey suggested the chancellor would back this approach. "Of course there will need to be some reprioritisation [in the welfare budget]," they said. "That could free up money we can use for more preventative things like youth support and apprenticeships."

Healey, whose future spending plans have already been branded implausible by leading think-tanks, will have to decide how much of any extra cash for employment support to take from benefits and how much from taxation.

Previously Milburn has contrasted the £25 spent on youth benefits with the £1 spent on support, and his report will lay out the scale of the demand for extra help for young people.

"Ridding Britain of its chronic Neet problem requires increased and sustained investment at scale but over the last decade UK government investment in employment support has fallen by two-thirds," it will say.

The report will contrast the 0.1 per cent of UK GDP spent today on schemes such as Access to Work, the Jobs Guarantee, Connect to Work and WorkWell, with the expenditure of 0.3 per cent in 2010-11.

"Countries with the most enviable Neet rates have invested much more", it will add, citing 0.3 per cent of GDP spent in Germany and 0.4 per cent in Denmark.

Stephen Evans, chief executive of the Learning and Work Institute think-tank, said there was "really good evidence" that youth employment schemes were effective but warned that, at about £5,000 per participant, they were not cheap.

To get Britain's Neet rate of 13 per cent down to that of countries that Milburn will cite, "you're talking billions, certainly £2-3bn and I don't think £6-7bn is outlandish", Evans said.

Ministers have set out a "youth guarantee" policy offering employment or training, and Healey in his Budget speech said he would "refuse to write off" Neets.

But annual funding of £580mn is half the level of the "new deal" for young people in the 1990s and just 15 per cent of the £3.9bn spent on the 1980s youth training scheme, Milburn will say.

The Department for Work and Pensions said the Milburn review would help "lay the foundation for sustainable reform" and that the government would not "pre-empt" its findings.