Jobcentres are the “least well-used” and “least well-loved” of all public services, a failure at the heart of the economy that helps account for the biggest contraction in the workforce since the 1980s. So said the employment minister, Alison McGovern, as she launched a report from the Institute for Employment Studies, a commission she worked with closely. It makes a fierce critique of the system as it stands. She packs a punch, rejecting a system in which all the blame falls on the individual and that ignores social obstacles: the millions of people waiting for NHS treatment, the absence of childcare, the lack of buses to work, age discrimination, and punitive jobcentre work coaches instructed to push people into “any old job”, however dead-end and insecure.

Promising a radical “culture change”, which will re-badge the government’s approach as a jobs and careers service, McGovern will throw the doors open for all. By only taking benefit claimants, jobcentres have had a stigma that deters employers as well as jobseekers. Work coaches will become advisers, trained to offer universal careers guidance. There may even be hot drinks, making this a service based more on tea and sympathy than fear and sanctions (stopping benefits). Yes, there will always be “conditionality”, but watch the balance shift rapidly towards help. Here’s how bad it is: half a million people who are in employment currently have to attend a jobcentre every week to prove they spent 35 hours either working or seeking more hours or better-paid jobs; their partners are called in to attest to their own job-seeking. Abandon that compulsion on the already employed and 2,500 advisers will be freed up to offer deeper, better consultations – finding options, easing obstacles, offering training – with less time spent policing benefits.

This bullying culture was at its worst a few years ago, when I was told that coaches were told to get 50.5% of claimants off benefits. In a secret interview with an outraged staff member, I reported on the tricks played, especially on people with mental illness or learning disabilities. People were told to re-apply for employment and support allowance, but the jobcentre was forbidden to stock the necessary forms. As claimants approached the target deadline of 65 weeks on benefits, advisers were told to report them to the fraud department for maximum pressure. Letters were sent to the vulnerable who didn’t legally have to come in, but in such ambiguous wording that they looked like an order to attend.

Managers, themselves under pressure, bullied staff to explain why they hadn’t sanctioned more people. They deliberately made the process of claiming a frightening hell. No wonder jobcentres are reviled. But it wasn’t always thus. In 1997, Labour revolutionised them: they took away the screens, retrained and upgraded employment staff, and brought in a new deal for young unemployed people that offered an array of options and chances. It had an instant effect, especially in getting young people and single mothers into work, as carrots worked better than sticks. Next month, a white paper will announce similar reforms.

There are about 900,000 more people off work than would have been on pre-pandemic trends – “more people than Tesco, Sainsbury’s and Asda employ put together,” Wes Streeting, the health secretary, said on Wednesday as he launched an Institute for Public Policy Research report on the economic damage done by poverty and ill-heath. The UK is one of the only rich countries to see employment fall post-Covid, costing the economy £16bn a year. Many of those out of work are young people with mental health problems who have never worked.

How did it happen? Let me count the ways: early on, the 2010 government all but abandoned the careers service, which is now mostly online. Most of Labour’s local Connexions services for young people shut. Sure Start was torn apart, and no longer sets families on their feet from children’s earliest years. School budgets were cut and the exam system fixed to brand nearly half of pupils failures. Post-pandemic recovery money for extra tuition was denied. The 40% of students who fail one of GCSE English and maths are forced to resit the exams until they reach 18. FE colleges giving them vocational courses get no funding for anyone not resitting, needlessly alienating many: few who fail the first time pass these miserable resits. Then the government started abolishing BTecs – hundreds of vocational courses that could open new doors and vistas to those pupils half-failed by school. These courses that were well understood by employers were replaced with T-levels, which are too hard for many. Labour looks set to restore them.

I visited the London South East further education college in Bromley, in a week when universities in England pleaded for more funds. Asfa Sohail, the executive principal, can’t help but feel indignant. Where English universities get £9,250 in tuition fees per student, she has £6,000, and many of her students are severely deprived: “Some live on one meal a day. Do universities cope with gangs, knives and drug dealers? Yet our teachers are paid 23% less than school teachers, though they are counsellors, too, with more contact hours, advising on mental or financial problems.”

Take a walk round a good FE college like this, and you see students learning everything from plumbing and carpentry to early-years teaching, IT and animation, hair and beauty, alongside academic subjects: it feels like hope for many to find what they want to do. These gardens of second chances, neglected and downgraded since 2010, are, Sohail says, unvisited by politicians whose children head for university. Despite a desperate need for people trained in health and social care, she is turning students away. How can she recruit and retain staff when she lost six health and social care teachers in this department at the end of the summer term to schools paying £6,000 more with better holidays? This bottleneck denies students places and fails to fill thousands of job vacancies.

Labour has bound itself to reach a phenomenally ambitious 80% employment rate. Can it be done? So much depends on reviving the NHS, at a time when the number of incapacity benefits claimants in the UK is increasing faster than in any country in Europe, as the Institute for Fiscal Studies reports. British jobseekers are the least likely in Europe to use a jobcentre. Transforming them from places of harassment to help, and allowing people to try jobs without instantly losing benefits, could turn around this alarming epidemic of worklessness. It did last time.