Job and career opportunities for young people are "not growing, they're shrinking", with one in six set to be out of work, education or training in five years unless action is taken, a review has found.
The education, health and welfare systems are no longer fit for purpose in preparing young people for adult life, said its author former minister Alan Milburn.
"We are at risk of a lost generation," he warned, with young adults facing a "perfect storm" of challenges.
The review came as official figures revealed more than one million young people were not in education, employment or training - the highest level in more than 12 years.
The figures add to growing concerns over the number of young people not being able to secure a job in the UK.
Milburn said rejections for young jobseekers after submitting dozens, sometimes hundreds of applications, had become the norm and challenged a characterisation thay young people were not trying or were "work shy, snowflakes, soft".
"The problem is that for too many young people, opportunities are not growing, they're shrinking," Milburn said.
"You put in an application dozens at a time, you hear nothing back, you just get rejected," he said.
Milburn was tasked with investigating why so many young people are not in employment, education or training - known by the acronym Neets.
His interim report released on Thursday does not include potential solutions to the crisis, but these will come at a later date in a final report.
"This is a visceral feeling in the country…it's bordering on a fear in the country among parents and grandparents that this generation is going to be a lost generation," Milburn said.
"The old contract in society was always you put in effort and got a reward, each generation would do better than the last - this contract has been broken for this generation."
His review, and other statistics, paint a grim picture for young people in the UK:
The cumulative cost of almost one million Neet young people to the UK economy has been estimated to be £125bn per year, according to the review.
That includes £38bn a year in lost economic potential, and £63bn a year lost due to economic "scarring", as they are less likely to work in the future. It also includes losses in tax revenue, increased health and benefits spending.
The total estimated is more than more than annual education spending in England.
Prime Minister Keir Starmer called the report "sobering" and said he would work with Milburn "on what more needs to be done" to tackle problems.
Work and Pensions Secretary Pat McFadden, said the review laid "bare the scale of the challenge and the root causes of youth unemployment we now need to confront".
"We are already taking action by bringing forward the biggest youth employment reforms in a generation to create 500,000 opportunities for young people, including a Youth Jobs Grant for businesses starting next month, more apprenticeships, and subsidised employment to help young people get a foot on the ladder," McFadden said.
But shadow work and pensions secretary Helen Whately criticised the government's policies, claiming Labour had "made it harder for a young person to take their first step into work".
Liberal Democrat Treasury spokesperson Daisy Cooper said her party "repeatedly warned that Labour's jobs tax would hammer job opportunities for young people and that their business rates hikes would kill off high street job opportunities".
The report said there is not one factor causing the crisis, with the Covid pandemic, smartphones and the current jobs market all having an impact.
"The evidence does not support a single explanation," he said, adding that there was "no evidence" of a link between migration and joblessness among young people.
"It supports something harder to accept: that the institutions we built to support young people into adulthood are no longer fit for that purpose, and that the country has known this for some time."
In a speech, he added that changes in mental health had also reduced the supply chain of young labour, with a sharp increase in the number of Neets reporting anxiety and ADHD as a key factor as to why they are not in work or training.
Systemic problems, he claimed, were also leading to a "bedroom generation" who doomscrolled and did not leave their rooms.
The report featured one young person detailing the effects of the Covid lockdown.
"We weren't really seeing people in person, so we didn't get used to the social aspect of connecting with people. Maintaining eye contact, hand gestures and all sorts. We were just sitting behind screens. There were skills that people were struggling to develop," they said.
Luke, who studied product design at university, said he applied for more than 400 positions and had only secured one interview as a cleaner which he did not get.
''It's humiliating," the 23-year-old said. "You think 'okay I've got all the knowledge, I've got all the skills, all I'm waiting for is a job to put it in practice'.
"It makes you depressed, especially the amount of rejections."
Meanwhile Rocky had been out of work for a year before he joined Nando's as a waiter. Three years on he is now an assistant manager.
"I'm 23 years old and I'm a manager at Nando's," he says. "I feel happy with myself. I can look back and tell my doubters that I made it.''
Milburn said the problem in the UK was worse than in other countries, with the number of young people out of work, training or education being three times higher than Holland and twice of Ireland.
High street retailers and hospitality businesses such as restaurants, cafes and pubs often offer the first experience of work for many young people.
Some employers have argued it has become more difficult to hire young people due to higher minimum wages and increased taxes, such as employer National Insurance contributions, though the Institute for Fiscal Studies (IFS) found there is no clear evidence that higher minimum wages have been a "major driver" of young people becoming Neets.
The boss of Next, Lord Simon Wolfson, told the BBC this week that just two years ago, the retail giant typically received 10 applications for every shop vacancy, but that number had since risen to 19.
David Fox, founder of the Tampopo restaurant chain, said inflation and the costs of employing workers such as National Insurance contribution (NIC) increases and higher minimum wages were preventing him from hiring more young people.
The IFS also pointed out in its latest research that most young adults aged 18–20 are largely exempt from employer National Insurance.
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