Welfare Reforms and Youth Unemployment

Lord Evans of Rainow Excerpts

Thursday 11th June 2026 Lords Chamber

Moved by

[Lord Evans of Rainow]

That this House takes note of the economic implications of the Government’s approach to welfare reforms and the current levels of youth unemployment.

[Lord Evans of Rainow (Con)]

My Lords, I pay tribute to my noble friend Lord Younger on his 15 years’ service on the Front Bench. He was an outstanding public servant and is very much missed in your Lordships’ House.

All of us can remember our first job and the moment we got our first pay cheque—or, depending on how old you are, pay packet: cash paid in a little brown envelope with holes in it. My father was a wages clerk, and he always told me to open it instantly and count how much was in it. My first pay packet was £10 and I bought myself sweets, clothes and Airfix models. Then I moved on to working in my local pub, the Farmers Arms in Poynton, as a glass collector and bottle washer—hospitality and retail.

High streets and the NEET issue are inseparable. Hospitality and retail provide jobs in every high street in the UK. Hospitality and retail jobs are part of the answer to youth unemployment. Your first job is your first step. With businesses struggling with increased costs and additional taxes, they have been forced to cancel recruitment plans, cut staff hours and, in the worst cases, close. This has acutely affected part-time, entry-level and first jobs, feeding directly into today’s NEET crisis.

Let us look at some economic data and facts. Nearly 1 million young people between the age of 16 and 24 in the UK, one in eight, are NEET—not in education, employment or training. At the end of 2025, that figure was registered as 957,000 young people. If they formed a city, it would be the third largest in the UK, larger than cities such as Leeds, Glasgow and Cardiff.

This is a long-term issue, as over the last 25 years the NEET rate has fallen below 10% only during the Covid-19 pandemic, while at the end of 2024 it reached the highest level in a decade, 13.2%. The UK has a higher-than-average rate of young adults who are NEET compared to similar countries in the EU and the OECD. The EU average for 15 to 24 year-olds was 9% NEET. The UK used to be around the EU average, but now only Romania has a higher NEET rate. France had a similar NEET rate when it entered the Covid pandemic in 2020, but it is now lower. Denmark’s NEET rate for 15 to 24 year-olds was 8.4%. The Netherlands is currently around 4.1%. The UK has gone from being average to being an outlier.

In the early 2010s, most NEET young people were unemployed, seeking employment and ready to start. Now only 43% are. The other 57% are economically inactive. This is driven most by an increase in inactivity among men since the Covid pandemic. Six in 10 NEET young people today have never had a job, going up from four in 10 in 2005.

The duration that a young person is NEET makes a big difference on returning to employment. Some 65% of those who are NEET for less than a year return to employment the following year, but only 25% of those who are NEET for more than a year do so. While there are 7 million more jobs in the UK than in 2000, the number of workers who are under 25 has fallen. Young people have gone from making up one in seven workers to one in nine. At the turn of the millennium, 63% of young people were in work, but now it is barely 50%. In contrast, the employment rate for 25 to 64 year-olds rose from 74% to 80% over the same period. Unemployment among young people was 9% in 2022. It is now 16%. More than 250,000 young people have been unemployed for over six months, the highest number since 2015.

The Young People and Work interim report, the Milburn review, estimated that the NEET rate could increase to over 16%, or more than 1.25 million young people, within five years. Over the last decade, the proportion of those who say they are NEET due to a work-limiting health condition has gone up by 70%. The proportion of NEET young adults who are inactive due to sickness or disability has gone up from 11% in 2005 to 28%. The proportion of disabled NEET young adults who cite mental health as their main health problem has risen from 24% in 2011 to 42% in 2025. All those who fell into ill health-related economic inactivity between 2017 and 2019, almost eight in 10, were still NEET more than two years later.

A young person who first claimed health and disability benefits in 2019 is one-third more likely to be NEET five years later than someone who first claimed in 2010. Between 2010 and 2020, the proportion of young people leaving disability benefits within five years dropped by 40%. Today, around seven in 10 young people claiming a health and disability benefit are still claiming a decade later.

The Milburn review found that only one in five NEET young people in England are getting meaningful employment support from the welfare system. Around half the young people in the UK do not claim benefits and so are hidden from the system. Of those who claim benefits, only one-third get meaningful support in finding employment, and these are often those who face the least barriers to work. Almost half of those who first claimed a health and disability benefit aged 16 to 24 are not in work or education 15 years later.

A young person who first claimed health and disability benefits in 2019 is 34% more likely to be NEET after five years than someone who first claimed in 2010, but this is different from what those surveyed for the Milburn review claimed they wanted. In a survey carried out for that review, 64% of NEET young people said they wanted to find a job or an apprenticeship, and 19% wanted to enter education or training. Of the young people who are claiming disability or health benefits and were surveyed by the Milburn review, 90% are working and 49% believe that they could work, either now if the right support was available or in the future if their health improved. Only 32% feel that they will not be able to work again.

This is not what the system supports. Less than half of the total £8 billion currently spent on key benefits for young people aged 16 to 24 has any participation support or requirement attached to it. It is an issue that affects the whole system. More than 4 million people claim universal credit, with no requirement to look for work. In 2024-25, DWP spent less than £0.2 billion on funding employment support programmes for young people, plus a share of the £1.4 billion spent on jobcentres, which support all ages.

The Milburn review estimated that, in 2024-25, £25 was spent on benefits for young people for every £1 on employment support for them. The amount of money spent on PIP for young people alone is expected to rise from £3.2 billion to £6.5 billion by 2031-32. The Milburn review estimated that, if the spend on DWP employment support stays at the levels currently funded through the youth guarantee, by 2030-31, for every £1 spent on employment support for young people, around £10 will be spent on welfare support for them.

The Milburn review estimates that the cost to the 45% of today’s NEET 24 year-olds who have never had a job will be almost £300,000 in earnings over the course of their lifetime. Their cost to the state could be up to £240,000. The estimated direct total potential output lost due to NEET 18 to 24 year-olds is £38 billion, and the estimated scarring impact on output is £63 billion. The estimated forgone tax revenue for 18 to 24 year-olds who are NEET is £3.2 billion and the estimated scarring forgone revenue is £10.8 billion. The cumulative annual cost to the UK of almost a million NEET young people is £125 billion. The UK’s welfare expenditure is set to rise by £18 billion this year, up to around £333 billion. That is an eye-watering figure, given that we need to spend more on defence and elsewhere.

When I was a Member of Parliament in the other place during the coalition Government, the Conservatives’ approach, working together with the Liberal Democrats, achieved some significant thresholds. Workless households fell to a record low; there were over half a million fewer children growing up in workless homes; youth unemployment was cut in half; and £20 billion was saved from the annual welfare bill. OBR analysis concluded that UK government policy reduced social security spending by £19.6 billion in 2015-16 alone, relative to the 2010-11 baseline. That shows how, by working together cross-party, savings can be made that are fair to the recipients of welfare but also fair to those taxpayers who have to pay for it.

What about the employers who will employ young people? Make UK, the manufacturers’ representative association, has set out a range of challenges, from an employer perspective, that are making it more difficult to recruit, train and retain young workers. It cites overall employment costs as the most significant concern for manufacturers in 2026, as overall hiring appears to be slowing as a result of higher costs. There are constraints on apprenticeships, with a lack of the right local provision, while increasing training and employment costs are limiting employers’ capacity to offer apprenticeship opportunities. On wider skills and technical education, there is insufficient exposure to vocational and technical routes, while lack of employer engagement from schools is limiting awareness and understanding of skilled employment opportunities for young people in sectors such as manufacturing. Consistently high increases in both the national living wage and national minimum wage and their age-based rates, plus the proposed reduction in the national living wage age threshold to 18, mean restricting opportunities for young people. On labour market regulation and the Employment Rights Act 2025, measures such as the right to guaranteed hours may limit opportunities for young people to be employed flexibly.

At the beginning of my speech, I mentioned hospitality and retail, which cite the tax burden that recently fell upon the sector. Since the 2024 Budget, the hospitality sector has been battling an increase of £3.4 billion in annual costs and, more recently, an existential crisis in business rates. Hospitality has been disproportionately and repeatedly hit with taxes by successive Budgets. The sector has accounted for nearly half of all job losses in the UK since the Budget, confirming that it is the hardest hit by tax increases. Hospitality is the biggest employer of young people, with 39% of its workforce being 16 to 24 years old, by far the highest of any sector. Young people have typically been able to rely on a job in their local high street as their first job, and job losses in the hospitality sector affect them most acutely.

The changes to employer national insurance contributions brought in at the 2024 Budget are costing the hospitality sector £1 billion annually. Employment costs hit every part of the workforce, but particularly young people. A student working 14 hours at the weekend would mean £1,140 more in employment costs. Last year saw a 25% year-on-year drop in summer jobs, evidencing the loss of job opportunities for young people. High employment costs have had a knock-on effect in limiting job opportunities for young people and reduced footfall in the high streets. High-cost employment is high-risk employment; hospitality offers many people their first job and is a vital first step on the career ladder for many young people. The Government must de-risk businesses employing the least trained and least experienced in the economy, by reducing employment costs and ensuring that part-time and temporary work is affordable for businesses to offer.

Job losses in the hospitality and tourism sector are collateral damage to the Government’s NEET mission. The industry is leading the way, providing 25% of all entry-level jobs. Will the Government rethink any fiscal measures that threaten further job losses in hospitality and elsewhere to provide accessible jobs for everyone, everywhere? Why was hospitality not included in the Government’s industrial strategy? Again, that would have helped young people gain good-quality apprenticeships.

Finally, we are still awaiting the Government’s response to the 2025 Lords report on social mobility, which was completed in December last year. The Government should have reported back by February this year. With exceptional delays, if a response is likely to take longer than two months, the responsible government department must write to the specific committee, explaining the delay and providing a revised timetable. With this in mind, can the Minister take this opportunity to ask her departmental officials to update your Lordships’ House on the Government’s response to this important Lords report on social mobility, which is highly relevant to all those NEETs who are no longer or have not started in the workplace? I beg to move.

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[Lord Evans of Rainow (Con)]

My Lords, I am truly grateful to everyone who contributed with excellent speeches to this debate today. As the noble Lord, Lord Liddle, said, it has been a non-partisan debate, which means that I look forward to debating again when we get the Milburn report, as the Minister says, in the autumn, because it is so important. I referred to the coalition Government and the progress made there 15 years ago. Your Lordships’ House has an important role in helping with this NEET issue. The noble Lord, Lord Walker, made the point in his excellent contribution that his is the Labour Party, not the benefits party, and that private sector businesses—indeed, private sector family businesses—create the jobs, create the wealth, to move the nation forward.

I am also grateful to the Minister for her responses. I am biased when it comes to the report of the Lords Social Mobility Committee, because I sat on that committee, but it is an excellent report and is complementary to the Milburn report, as my noble friend Lord Young said. The key recommendation is to run a pilot scheme and look at a combined authority, such as that of Andy Burnham in Greater Manchester, or indeed Bristol or elsewhere, to give them the money and see if we can learn from a focused and concentrated effort to reduce NEETs in those communities. As we say in the report, there needs to be a welfare system reset to reflect local areas and local labour markets, because those mayors know best about the specific needs. One hat does not fit all, and it should not even be on a regional basis but on a town-by-town, city-by-city basis.

We cannot carry on spending more on disability and incapacity benefits than we do on defence. At the beginning of my speech, I referred to the predicted growth in welfare spending of £333 billion by 2030. During this debate, I was very sorry to learn that the Defence Secretary, John Healey, has resigned, specifically because of the lack of money being provided for our defence at this time. I pay tribute to John Healey, who was an outstanding Defence Secretary and, indeed, public servant.

Finally, my noble friend Lord Young light-heartedly pointed out that of the five Conservatives on the Select Committee, three were old Etonians, but there was also one NEET. I was the NEET on that committee, and when I left school at 16 with no qualifications, I was lucky enough, as I indicated in my opening remarks, to have had a Saturday job in a shop. I also worked in my local pub, which gave me the work ethic that enabled me to get into a business career in manufacturing, in the local aviation sector near where I lived, which set me up for life. The challenge is to get young people into those early start-up jobs. Saturday jobs are a rare thing these days, as has been ably pointed out. Your Lordships’ House is in a position to help NEETs. I beg to move.

Motion agreed.