The government is 'pouring fuel on the fire' of unemployment by making it more expensive to hire young workers, a leading recruitment boss has warned.

James Reed, chief executive of Britain's biggest recruitment company Reed, said there is a 'real shortage of jobs' and vacancies are declining 'relentlessly' amid the rise of AI.

The situation is now worse than pre-pandemic and the best thing ministers could do to revive the tanking economy is to abolish employers' national insurance contributions, he added.

Mr Reed said the cost of employing a 21-year-old has soared by 74 per cent since 2020, with the government pocketing thousands of pounds of this in tax and national insurance.

His comments came as former health secretary Alan Milburn, who is leading a government review into youth unemployment, claimed the state has failed young people in a 'shameful way' by 'transporting them into the world of benefits'.

He told BBC's Sunday with Laura Kuenssberg that youngsters were understandably suffering more mental distress than previous generations as they have 'lived through the pandemic, the rise of social media and job opportunities disappearing'.

Mr Milburn said: 'The old contract in society was that each generation would do better than the last, so this is the first generation where that contract is being broken.

'This is really shameful. I mean, it's one thing to be ignorant, it's another thing to be neglectful, and we as a society, and we in politics, have been neglectful of what is frankly a scandal, and it's a scandal that we can't afford.

'Entry-level jobs are disappearing, so the jobs that you used to be able to get the first rung on the ladder - they've gone.

'You hear 'it's a soft generation', 'they're snowflakes', all of these terrible sort of pejorative words, everything that I've seen, everything that I've heard, all the polling that we have done for this review suggests the reverse of that.

'What is shameful is that, as we've uncovered in the course of this review, for every £25 that we spend keeping young people on benefits, we spend only a pound helping them get into work through employment support.

'So this is a failure, this is a failure of the welfare system, but it's a failure, I'm sorry, of the school system, the skills system, the health system.'

Mr Milburn said the problems of youth unemployment predate the rise in national insurance contributions and the rise in the youth minimum wage.

But Mr Reed responded: 'Alan Milburn touched upon the minimum wage and national insurance, but employers don't just touch upon that, they dwell upon it, because it's costing them a lot.

'So we've seen the minimum wage for a 21 year old increase considerably in this country.

'It now costs an employer £29,654 to employ a 21 year old 40 hours a week for a year, which is 74 per cent more than it cost in 2020 and part of that extra cost - that extra £12,000 pounds, is how much it's gone up - £4500 is actually tax taken by the government.

'So, in an environment where we've got AI burning through jobs, we've got, unfortunately, policy makers pouring fuel on the fire, because it's making it more expensive and more difficult for employers.'

Dame Rachel De Souza, children's commissioner for England, said schools need to take more responsibility for ensuring children are ready for the workplace.

She added: 'The number one thing the kids are telling us, young people are telling us, is 'we want great jobs - we're worried about money, we're worried about barriers'.

'The mental health issue has switched right down, as has climate. They're more concerned about, 'have I got enough friends', world peace.

'But on the job issue, there is no lack of ambition in England's young people, no lack of ambition at all.

'Schools need to focus more on working with employers and getting careers done.

'I surveyed every single head teacher in the country, 90 per cent response rate, only 2 per cent of them thought careers or work was their issue.' 

A Treasury spokesperson said: 'Increasing the National Minimum Wage boosts pay for over 200,000 young workers, and employer NICs are lower when hiring under‑21s.'

Meanwhile, the Government is being urged to 'turbocharge' support for young people.

The Trades Union Congress has published analysis showing more than one in four people aged 24 in England do not have a Level 2 English and maths qualification.

TUC general secretary Paul Nowak said too many young people are 'stuck' out of work for extended periods, which has long-lasting effects for their prospects.

He added: 'Turning things around for young people must be a shared national mission – that's how we start to rebuild Britain.'