Young people on health-related benefits could be offered subsidised jobs with major employers like KFC and Home Bargains after the Government indicated it was examining how to go further to tackle youth unemployment.

Work and Pensions Secretary Pat McFadden said he had commissioned senior officials to look at extending support, “particularly [for] young people with health conditions”, with any further work to be done alongside employers, charities, disabled people’s organisations and young people themselves.

The indication came in response to an independent review led by former health secretary, Alan Milburn, which concluded there had been a “whole system failure” leaving close to one million young people permanently detached from work.

A spokesperson for the Department for Work and Pensions did not deny the proposal to expand the scheme but said: “Reforming the welfare system so that it better meets the needs of disabled people is a priority for the Government.”

They added: “We know there’s more to do. That’s why we have accelerated our youth guarantee, announced 300,000 new work experience and training placements, and Alan Milburn is due to deliver his recommendations on tackling the barriers facing young people later this year.”