The diagnosis is dire. Alan Milburn has published the first part of his forensic report on the lives and chances of young people, their fate after leaving school or college, the inadequacy of their health, education and pastoral care, and the reluctance of employers to hire them. This is a “moral crisis”, he says. There are now more than a million young people not in work, education or training (Neets), and Milburn expects that number to rise to 1.25 million without radical change. The government needs a “big idea”, he tells me. This should be it, “the spine, the purpose”.

Perhaps he was expected only to solve the particular problem of left-behind and lost Neets. What he has delivered instead is an excoriating overview of how badly this young generation is treated altogether. A sense of shock reverberates through every well-written page. Why have children and young people had such a low priority in resources and political concern, especially since 2010? There has been institutional neglect, loss of youth and careers services, chaotic non-communication or data exchange between dislocated silos, small schemes coming and going. Milburn describes a catastrophic failure: it needs a whole “system reset” and no more “tinkering”.

There is nothing new about the social portrait he paints. Britain’s gross inequality was always starkly revealed in the fate of children: those from the poorest families and in geographically deprived, job-free areas are most destined to be Neet when they leave school, many opting out earlier through absence from schools they hate. Those already lacking support in their early years, not ready to learn when they reach school, are three times more likely to end up Neet. Every passing year makes catching up less likely.

All this has been well chronicled, from Charles Booth and Seebohm Rowntree’s surveys in the 19th century, to the Child Poverty Action Group, Resolution Foundation and Institute for Fiscal Studies now – and, indeed, in annual reports on declining prospects by the Social Mobility Commission that Milburn chaired for many years until resigning angrily saying the Tory government lacked the “necessary energy and focus” to tackle deep-seated inequality. After the 1970s, social mobility plummeted. But this new report records the fate of young people far beyond the poorest. This critique of just about everything that is wrong with Britain has the potential to become the Beveridge report of our time, a landmark intervention that at last shifts national priorities and goals towards young people.

The right will find little comfort here. Did the raised employers’ national insurance, the increase in the minimum wage and the extra working rights cause the lack of entry-level jobs for the young? “Bullshit,” Milburn says bluntly. “This didn’t start two years ago. It’s not the cause of the crisis.” He points to the 1.6m first-rung jobs that have vanished in the past 20 years. “This is structural, not about writing better CVs.” He points to a 35% fall in apprenticeship starts in the past decade and the loss of retail and hospitality jobs.

Those who enjoy the age-old pleasure of damning the young as snowflake idlers, unlike us in our splendid young day, will find no comfort either. Milburn will have none of it. He talked to me of his travels around the country listening to young people, as well as employers, jobcentre and mental health staff, and those at schools and colleges. The voices of young people leap off the page: 84% of those surveyed wanted to work or do an apprenticeship and a further 19% wanted to enter education or training; 15% have degrees; 30% have five good GCSEs or equivalent. The misery of those applying over and over, of having their CVs read by AI, of never getting a response, of sitting through online interviews conducted by AI on the Hirevue platform, is captured by many, including a young man with a computing science degree. In a Tower Hamlets jobcentre recently, I listened to young people’s weekly meetings with their work coaches, hearing all their eagerness to work crushed by the lack of jobs. Milburn talks with indignation of underfunded work coaches with caseloads of more than 100.

Life on benefits is not easy street, but despair. This and other welfare myths need stamping on daily, as the Treasury minister, Torsten Bell, did this week on BBC Radio 4: no, the working-age benefits bill is not “out of control” but flat, staying at the same proportion of GDP as decades ago. (It’s the triple-locked pensions bill that rises.) Yes, there’s the serious problem of so many young people stuck on sickness benefits. What Milburn says is that they need support into work, not an arbitrary cut to welfare as Labour failed to carry out last year. “Every £1 spent on support is matched by £25 spent on benefits. Reverse that!”

The barriers for young people with troubled families or poor mental health could have been overcome years ago with help at school age. This is “the perfect storm”, he says, for those who lost two years of social and education life in Covid, were unprotected from social media and are now hit by the economic downturn. Saturday jobs evaporated, work experience is a low priority for schools and colleges, and the catch-22 is employers rejecting those who have never had a job before (60% of Neets), whatever their qualifications.

Milburn tears strips off every service failing the young. Early years education is getting top priority again now, but much more expert teaching and family support is still needed. The school curriculum gets a pasting for exam obsession, in a system where schools are only assessed on qualification results, not on the outcomes and destinations of pupils when they leave. “When I asked employers, only 3% – 3%! – complained about literacy and maths qualifications.” He is horrified by forced multiple GCSE retakes, casting out any enthusiasm for learning. “Employers want agility and adaptability. The school system is not designed for work.” Curriculum change needs to come faster: the report says only 64% are happy at school, the rest finding it “traumatic” or “boring”, filled with exam dread and failure.

Failure is everywhere. “Why do FE colleges have a cap on numbers, but not universities?” he asks. Plunging immigration figures leave employers desperate for skills, so why are further education places cut, why so badly funded? On mental health, why is treatment counted but not outcomes such as helping people back into work?

This is only the diagnosis: remedies will come in Milburn’s next report, which will drop just before the Labour conference. He talks of early prevention saving life chances and money, but can he get the Treasury to pony up the bridging loan to fund early support – cash that will only be recouped years later? The Treasury resists pay-now-save-later pleas. “We shall see,” he says, but the wind is in his sails.

As Labour strives for renewed purpose, the party can find it all here. Milburn documents a country where for the first time ever, younger generations are worse off than their parents were at their age. That, he says, is a “broken social contract”. Perversely, Tony Blair’s recent irritating essay completely misses all of this. The government should ignore his intervention, and read every word of Milburn’s: this is what Labour is for.

• Polly Toynbee is a Guardian columnist