Young people with conditions including ADHD and anxiety could lose access to an extra £217 a month in Universal Credit under sweeping proposals to overhaul Britain's benefits system.
Those aged under 25 who do not have severe disabilities that significantly limit their ability to work could instead be offered employment, education and training support as part of the major shake-up of the welfare state.
Milburn report expected next week
Former Labour minister Alan Milburn is expected to publish a long-awaited report into youth employment next week, recommending the creation of a separate social security system specifically designed for younger people.
The proposals form part of Labour's ambition to prioritise employment over welfare and reduce the number of young people being signed off work for health reasons.
Under the potential changes, some young claimants could be moved away from the Universal Credit health element, worth around £217 a month to new recipients, and placed on a new pathway designed to help them find work or access training.
Thousands affected and government backing
According to the Resolution Foundation think tank, approximately 260,000 young people currently receive the health element of Universal Credit, without being required to participate in programmes aimed at helping them enter employment, education or training.
The i Paper reports that Prime Minister Andy Burnham and Work and Pensions Secretary Pat McFadden are expected to accept the recommendations contained in Mr Milburn's 200-page report.
Mr McFadden recently visited Denmark to examine its social security system and told the publication there was "merit" in establishing a completely "distinct" benefits system for younger people.
However, he did indicate that discussions were still needed over which age groups should be included.
Welfare spending and NEET concerns
The proposals come amid growing concerns over Britain's welfare spending, which is forecast to rise from £353 billion this year to £431 billion by 2031-32.
Almost one million people aged between 16 and 24 are currently classified as not being in education, employment or training, commonly referred to as NEETs.
Mr Milburn's interim report identified mental health conditions, including anxiety and depression, as among the most common health problems affecting young people outside work and education.
It also highlighted a significant increase in young people reporting autism, learning disabilities and physical conditions that create barriers to employment.
European models and regional powers
The Netherlands is being examined as a potential model for reform, with just 4.8% of young people classified as NEETs compared with 13.6% in Britain.
Mr Milburn has also studied other European approaches to employment support and is expected to recommend giving regional mayors greater powers to introduce programmes tailored to local needs.
Areas including Blackpool and Middlesbrough face particular challenges, such as poor transport connections and changing employment opportunities.
Denmark, as well as the Netherlands, operate systems in which young people are expected to participate in education, training or employment programmes as a condition of receiving state support.
Similar requirements could be introduced in Britain, alongside subsidised employment opportunities, supported apprenticeships and training schemes.
Mr McFadden's Jobs Guarantee Scheme, which is due to expand to young disabled people next year, could also form part of the proposed system.
Support for vulnerable groups and next steps
However, some vulnerable young people could receive additional financial assistance rather than reduced support.
These groups could include care leavers, young carers, teenage parents and young people leaving custody.
One proposal involves providing eligible care leavers who are not in education, employment or training, or are at serious risk of becoming so, with an allowance of £50 a week for six months.
The payments, modelled on the former Education Maintenance Allowance, would be conditional on participation in education, employment or training.
Mr Milburn's recommendations are expected to be published ahead of a separate review led by Sir Stephen Timms into disability benefits and assessments.
Any changes would still need Government approval, while some proposals would require agreement from devolved administrations.
Labour ministers would need to secure the backing of their own MPs if they decide to proceed with the reforms, and would also need to secure the necessary funding from Chancellor John Healey.
