Andy Burnham could face an upfront bill of more than £6 billion to help young people into work if he supports proposals outlined in a major new report on youth unemployment.
The funding could be used to establish employment programmes modelled on schemes that have delivered strong results in countries including Germany and Denmark.
Former Labour health minister Alan Milburn has examined those European approaches as part of his inquiry into the UK’s worsening youth unemployment crisis, with 15.6 per cent of young people currently out of work.
Later this month, Mr Milburn is expected to highlight the success of those schemes when setting out recommendations for Britain. His report is likely to favour greater investment in employment support rather than reductions to benefits.
That could leave the Prime Minister facing a substantial initial cost, even if the reforms eventually reduce spending on welfare.
The UK currently spends about 0.1 per cent of GDP—equivalent to £3.7 billion a year—on helping people into employment. Germany and Denmark devote considerably more to the task.
Germany, where youth unemployment stands at 7.5 per cent, spends 0.3 per cent of GDP on employment support. Its measures include wage subsidies for workers aged up to 29.
Matching Germany’s level of spending would cost the UK Government more than £6 billion.
Alan Milburn has warned Andy Burnham could face a bill of more than £6bn to get young people back into work if he backs new measures tackling youth unemployment
Denmark spends even more, allocating 0.4 per cent of GDP. It also operates a scheme allowing young disabled people to take state-subsidised “flexi jobs” with reduced working hours.
Mr Burnham said yesterday that the measures recommended by Mr Milburn would not directly increase the welfare bill.
However, he left open the possibility of additional spending on “investment in the support that teenagers need and the guarantees that I want to put in place for them”.
Speaking to Times Radio, he said the proposals would require “investment up front”, but added that “in time, the savings will come”.
According to the Resolution Foundation, the UK has the third-highest proportion of young people not in employment, education or training—known as NEETs—among the world’s wealthiest countries. The thinktank has linked the problem to rising ill health and weaknesses in the benefits and employment-support system.
It recently warned that Britain was facing a “crisis” in youth employment after the number of 16- to 24-year-olds classified as NEETs rose sharply to almost 1 million—the highest figure in more than a decade.
At the same time, the UK’s welfare bill is expected to climb from £353 billion this year to £431 billion by 2032, according to projections from the fiscal watchdog, the Office for Budget Responsibility (OBR).
The Prime Minister is not expected to formally respond to Mr Milburn’s high-profile report until the next King’s Speech in April. Any measures are likely to be funded through a later Spending Review.
The health and education budgets could face reductions to help pay for the reforms, as both departments would play a role in delivering the proposed policies, The Telegraph reported.
Ministers are also understood to be worried that the OBR may refuse to count the full impact of new employment-support measures. The watchdog said this week that it would apply “quite a high bar” before including such effects in its forecasts.
In its latest projections, the OBR pointed to two earlier government schemes that failed to meet their stated objectives.
An expansion of NHS Talking Therapies did not deliver its promised 10,000 increase in employment. Meanwhile, the Connect to Work programme is expected to fall short of its target to raise employment by 25,000, missing the goal by at least a third by 2028-29.
Tom Josephs, an OBR official, said: “What we found in these cases is that big changes to delivery and funding after the initial announcement meant that the programmes looked very different from the ones we originally scored.
“So we have to have quite a high bar in the future for including impacts from these sorts of programmes in the forecast.”
A Department for Work and Pensions spokesman said: “The Milburn and Timms Reviews, due to report in November, will lay the foundation for sustainable reform, and we will not pre-empt their findings.”
The spokesman added: “We are already changing the system through the Youth Guarantee, which includes £2.5 billion of investment in youth employment over the next three years. The programme will support almost one million young people and help deliver up to 500,000 opportunities to earn and learn.”