We can’t overlook education and benefits if we want to reduce the NEET rate

This article was initially published on our Substack.

The Interim Report of the Milburn Review made a stark warning about a ‘lost generation’ of young people. It was backed by two sets of data the same day revealing grim milestones – ONS figures revealed that the number of 16–24-year-old NEETs (young people not in education, employment or training) has surpassed one million for the first time since the tail end of the global financial crisis, while Eurostat data showed the UK had a higher NEET rate than any other European economy in the OECD.

Crucially, the report recognises both the gravity of the problem and its complexity. It grasps all the key drivers of the UK’s NEET crisis: rising ill-health in the young population; limited vocational education; a hands-off benefit system; and a weak labour market.

There are two places, however, where our own analysis suggests the report might be missing the mark.

Education, not employment, is the main problem for young people

The Interim Report “unashamedly extols the virtues of work” and suggests labour market participation should be the overarching principle governing our education, health and benefit systems when it comes to supporting young people’s transition into adulthood. But our recent report suggests that a focus on work should not be the only – or even the main – response to the NEETs crisis.

It is plausible that recent policy changes – youth minimum wage increases and higher employer NICs – could be having an effect on NEET rates. Youth-heavy sectors like hospitality have seen labour costs rise and jobs fall by more than average in recent years. But evidence of this translating to lower youth employment is thin on the ground. The current labour market downturn is only marginally more youth-heavy than those of the past: the 18-24 unemployment rate is currently 3.9 times the 25-plus rate, only slightly above the 3.4 ratio seen when youth unemployment peaked in 2011. Indeed, just over half the recent rise in NEET rate can be explained by the general weakening of the UK labour market, and not anything specific to young people.

It’s also not the case that our youth employment rate is unduly low compared to other OECD countries. Instead, it is the UK’s low share of 18-24-year-olds in education, and especially vocational education, that explains all the gap between us and low-NEET countries such as the Netherlands, Denmark and Germany.

Higher participation in education – including combined with work – is how low-NEET countries achieve lower NEET rates than the UK

While the Interim Report acknowledges that educational and vocational pathways out of NEET status should be a key part of the response, there is a risk that the report’s overarching focus on labour market participation leads policy makers to focus on ‘work-first’ solutions, rather than addressing the UK’s underwhelming performance in vocational education.

If you want the benefits system to do more, it’ll need the resources to do it properly

The other half of the rising NEET rate story is largely about rising ill-health-related inactivity, matched by a growing proportion of young people in receipt of health and disability benefits. Behind this trend appears to be a genuine deterioration in young people’s health. It was good to see the Interim Report robustly dismiss the notion of a ‘snowflake generation’.

But if Milburn’s report acknowledges that the benefit system is not the primary driver of the NEETs crisis, it also recognises its importance as the institution “most likely to encounter young people when other systems have failed.” There are certainly big problems with the benefit system: it aggressively pushes unemployed young people towards work even when education might be a better long-term solution, and provides little or no support for those inactive due to ill health.

The report’s observation that £25 is spent on benefits for young people in the UK for every £1 spent on employment support hints at it favouring a shift away from spending on income support and towards employment programmes.

But while spending more on effective employment support will reduce overall benefit spending, a simple switch could cause real hardship. The total value of incapacity benefit has just been cut by 28 per cent for new claimants: a young person in receipt of Universal Credit (UC) and its health-related element now has an income of around half the relative poverty line. A further cut would likely go too far.

Income from UC Health for a single young person is significantly below the relative poverty line

The Interim Report also hints that Personal Independence Payment (PIP), not formally an out-of-work benefit, should also come with employment support. It would be great if out-of-work young people who receive PIP (but not UC) were given more support to manage their condition in a way that might ease the journey back to paid work, but there would clearly be risks in making payments going to disadvantaged and disabled people conditional on engagement with DWP. It would also break the principle that PIP is there to compensate for the additional costs caused by disability. After last year’s rushed attempt at reform of PIP, policy makers should approach reform here carefully.

The real test lies in how the Government responds

Last week I was asked by an interviewer what single measure could make the biggest difference to the UK’s NEETs crisis. My answer was equivocal; for this problem more than most, there really is no single lever to pull. Cutting the NEET rate will need action on multiple fronts, and a coordinated approach spanning multiple government departments, and regional and local authorities. And that will all cost money. The risk is that fiscal pressures push the Government towards cheaper interventions such as cutting benefits, rather than the more sustained investment that is needed.