A government review into youth unemployment, whose first-stage findings are due before the end of this month, has found that having a degree or higher qualification is no longer a reliable protection against unemployment.
Former Labour cabinet minister Alan Milburn, who is leading the inquiry, is expected to use the findings to call for a fundamental rebalancing of how Britain funds education, arguing that the current system produces qualifications that the labour market increasingly cannot absorb.
The review finds that 34.9% of the 946,000 young people currently classified as Neet – not in employment, education or training – hold qualifications equivalent to A-levels or above. Among them, 10.6% hold a degree. “Employers are demanding skilled labour but the education system is not providing it,” Milburn told the Financial Times.
What Employers Are Already Seeing
The review’s findings reflect a pattern already visible in the small business (SME) hiring market. Figures published today from the Office for National Statistics show the number of UK payrolled employees fell by 104,000 in the year to March 2026, with vacancies dropping to 705,000 between February and April – the lowest level since 2021. For young people attempting to enter the workforce, the timing is poor: the entry-level and part-time roles they have historically depended on are among the first to contract when employers pull back on hiring.
The pressures driving this persistent decrease in hiring play a large role in explaining the extent of the hiring crisis. Earlier this year, the British Retail Consortium (BRC) calculated that the cost of employing a part-time entry-level worker rose by more than 13% in 2025 alone, driven by two increases to the National Living Wage, a higher employer National Insurance Contributions rate and a reduction in the threshold at which those contributions apply.
Recent research from Employment Hero, meanwhile, found that almost a third of UK employers were planning to adjust salaries and benefits in response to legislative changes, including the Employment Rights Act, with hiring caution concentrated in the part-time and entry-level roles young workers depend on most.
The Structural Problem Between Qualifications and Skills
Milburn’s review points to a deeper cause of the growing gap between the qualifications young people hold and the practical skills employers are hiring for. Universities face no cap on student numbers and attract significantly more public funding per head, while Further Education (FE) colleges operate under government-controlled allocation and receive £2,000 less per student per year than their higher education counterparts.
A disparity that has grown in real terms over the past decade, the system has continued to channel the majority of school leavers toward higher education. For employers in construction, care and the skilled trades, the result has been a steadily narrowing pipeline of practically trained candidates for the roles they most need to fill.
It’s a shift that is already prompting some SMEs to look elsewhere. Employment Hero’s research found that 46% of SMEs now value apprenticeships and degrees equally – and 73% say they want to embrace the Government’s expanded apprenticeship funding for under-25s, which began rolling out in April 2026. For many, the apprenticeship route is filling a gap the broader education system has left open.
32,000 Students Face Lost Places This September
While the demand for these routes into vocational employment appears to be there from both employers and prospective employees, however, government funding is limited. As highlighted by David Hughes, Chief Executive of the Association of Colleges in March, some 32,000 students – concentrated in construction courses – could lose their places after the UK Government U-turned on plans to increase funding allocations.
Speaking to the FT, Hughes, set out what guaranteed, uncapped FE funding – the arrangement universities already benefit from – would mean in practice: “If every 16 to 24-year-old could enrol in a college, like they can in higher education, with funding guaranteed, the Neet numbers would immediately drop.”
Milburn’s review is expected to call for exactly that – removing the FE cap entirely, which could put vocational training on the same open-access footing as higher education, giving significantly more young people access to the practical training routes that feed directly into the sectors employers have struggled most to recruit for.
What the Full Review Will Ask
Milburn’s full report is expected later this year, with the former cabinet minister set to lay out a programme of reforms spanning FE funding, vocational qualifications and careers guidance. For UK employers who have spent years absorbing a skills shortage while the vocational training pipeline has narrowed, how the Government responds will matter considerably.
