The government recently announced a new £1 billion package of youth employment reforms. In this article, IF Senior Researcher Conor Nakkan takes a closer look at the package and considers whether it is up to the scale of the problem.
From welfare state to working state?
Earlier this month, the Secretary of State for Work and Pensions, Pat McFadden, unveiled a new package of youth employment reforms. We will come to the detail of those reforms below. But first, it is worth briefly looking at some of the language in McFadden’s speech itself. It suggests that the government increasingly sees youth economic inactivity as part of a broader challenge facing the future of the welfare state.
At the outset of the speech, McFadden began by emphasising the value of work. As he put it, “work is good for us,” not just because it provides us with a wage, but because it gives us “pride, purpose and identity.” He argued that work is one of the main ways we realise “the best versions of ourselves.”
McFadden then said that “too many young people” are being excluded from those benefits, “sometimes with lifelong consequences.” Young people are, in his words, being “let down” by a system that doesn’t provide them enough opportunities and too readily labels them as “unfit for work.” He described this as a “generational challenge,” and argued that fixing it is in “all our interests.”
Perhaps more revealing was the broader argument that followed. McFadden stressed that addressing youth inactivity will require more than a “tweak” to a handful of existing policies. Instead, he argued, the combined pressures of technological change, an ageing population, and falling immigration mean the government must “change the job description of the state.” As he put it, the state must become “more of a platform for opportunity in a fast-changing world. Not just a welfare state but a working state.”
McFadden’s speech, then, made three central points. First, far too many people, especially younger people, are out of work and reliant on benefits. Second, in many cases, this is not only detrimental to their own wellbeing, but also carries long-term costs for society and the state. And third, more ambitious and “radical” reform will be needed to get more people back into work and keep them there.
The backdrop: Youth unemployment and inactivity
McFadden’s speech was prompted by growing concern about the rising number of young people who are not in education, employment, or training (NEET). In April to June 2021, around 9.7 per cent of 16 to 24-year-olds, roughly 673,000 people, were NEET. By October to December 2024, that figure had risen to 13.2 per cent, or around 971,000 young people. The latest data for October to December 2025 suggest a modest improvement. The number of people who are NEET has fallen slightly to 957,000, or 12.8 per cent of this age group. Nonetheless, there are now 284,000 more young people who are NEET than there were four years ago.
It is also important to be clear about what sits behind these headline figures. Not everyone who is NEET is unemployed. Technically, someone is only considered unemployed if they are not in work, are actively looking for work, and are available to start within the next fortnight. Of the 957,000 young people who were NEET in late 2025, around 43 per cent, or 411,000, were unemployed. That is the highest number of unemployed NEETs since 2015. The remaining 57 per cent were economically inactive, meaning they were neither in work nor actively seeking it. That is close to the highest level since 2012.
This distinction matters, because it tells us that the problem is not simply one of joblessness. A growing number of young people are becoming detached from the labour market altogether. McFadden’s speech also highlighted some of the deeper concerns within this group. He noted that the share of NEETs who are sick or disabled has doubled and now stands at around 45 per cent of the total. He also said that 58 per cent of NEETs have never had a job.
It is also worth noting that the UK performs relatively poorly by international standards. The OECD publishes NEET data for 15 to 24-year-olds across advanced economies. These figures are not directly comparable with the UK’s estimates, but they still paint a troubling picture. Across 34 OECD countries, the average NEET rate is around 11 per cent. In countries such as the Netherlands, Norway, Ireland, Sweden, Australia, and Germany, it sits between 4 and 9 per cent. By contrast, the UK’s NEET rate on the OECD measure is 14 per cent. This is the seventh highest, behind only Lithuania, Israel, Mexico, Costa Rica, Colombia, and Türkiye
What is changing?
The government’s new youth employment package has three main components. First, it has expanded the Jobs Guarantee, which was first announced in the Autumn 2025 Budget. This scheme subsidises employer wage costs for 18 to 21-year-olds who have been on Universal Credit for 18 months or more. It covers 100 per cent of the minimum wage for up to 25 hours a week, for six months. The new announcement extends that support to eligible 22 to 24-year-olds.
Second, the government introduced two new incentive payments for employers. The first is a Youth Jobs Grant. This will provide businesses with £3,000 for each 18 to 24-year-old they hire who has been on Universal Credit for at least six months. The second is a new Apprenticeship Incentive. This is worth £2,000. It will be paid to small and medium-sized businesses for each new apprentice they take on aged 16 to 24.
Finally, the government has made several changes to the apprenticeships system. It has removed funding from 16 apprenticeship standards, many of them linked to management and supervisory training. At the same time, it is expanding foundation apprenticeships into hospitality and retail. It is also introducing seven new apprenticeship units linked to Industrial Strategy priorities. The broader aim is to shift funding away from apprenticeships that mainly benefit older workers, and towards more entry-level opportunities for younger people.
All in all, the government says that the newly announced measures amount to an additional £1 billion of spending. Combined with previous commitments, that brings total new investment in youth employment measures to around £2.5 billion over the next three years.
The good news
The first point to make is that the new package is undoubtedly welcome. It is encouraging to see the government recognising the urgency and importance of addressing youth inactivity. And it is also promising that the measures designed to address this challenge are backed by new investment.
Moreover, these new subsidies will significantly lower the short-term cost of hiring eligible younger people. The Institute for Fiscal Studies (IFS) suggests that Jobs Guarantee will lower the six-month cost of employing a 21-year-old on the minimum wage by around 86 per cent. The new Youth Jobs Grant reduces employer costs by around 30 per cent for those unemployed for 6 to 18 months. This may be enough to incentivise some employers to hire younger workers whom they might not otherwise have taken on.
Long-term costs and the scale of the problem
Nonetheless, there are still reasons to be concerned that these measures don’t go far enough. For one thing, as the IFS highlights, these measures do not materially affect the long-term cost of employing younger people. The Jobs Guarantee only lasts for six months. And the £3,000 Youth Jobs Grant is modest when spread over a longer period. That matters because the challenge is not just to get young people into work for a few months. It is to help them find jobs they can keep over the longer-term.
There is also a problem of scale. The government expects the Jobs Guarantee to support around 30,000 people a year over the next three years. The Youth Jobs Grant is expected to support around 20,000 a year. Even if every one of those jobs were genuinely additional, the IFS estimates that the NEET rate would fall only from 12.8 per cent to 12.1 per cent. If the estimated 17,000 extra apprenticeships are included, it would fall to 11.9 per cent. That would certainly be an improvement. But it would not be a dramatic one.
The impacts of previous policy changes
There is a further problem here too. Since April 2025, the employer National Insurance rate has risen from 13.8 per cent to 15 per cent. The secondary threshold has also been cut from £9,100 to £5,000. Those changes have raised labour costs most sharply in lower-paid work. That matters because young people tend to be concentrated in lower-paid sectors.
When these changes were announced, we warned that they were likely to disproportionately affect younger workers. And, there already appears to be some evidence that these changes have reduced job opportunities for younger workers, particularly in retail and hospitality sectors. It seems unlikely that the new subsidies will come close to offsetting these longer-term pressures on hiring. If the ultimate goal is to get more young people into work, making them more expensive to employ is probably not the best way to achieve this objective.
Next steps
Finally, these reforms should not be the end of the conversation. In late 2025, the government asked Alan Milburn to lead an independent review into the rise in the number of young people who are NEET. The review will examine the drivers of rising inactivity and recommend policy responses. That should be an opportunity to think more seriously about the deeper and more structural causes of youth inactivity. It should also be a chance to engage more closely with employers themselves.
In sum, then, the new employment package is a welcome start. But on its own, it still looks too small and too short-term to match the scale of the challenge.