Dave Sherlock, chief executive of the Training Standards Council, warned that in some places fewer than 10 per cent of 18 to 24-year-olds in education or training on the New Deal get a qualification.
He was particularly critical of the full-time education option, which is chosen by most New Dealers. "Unfortunately that is the one with the most disappointing results," Mr Sherlock said.
The first round of inspection reports are also heavily critical of much of the training provided.
The inspections covered the five options - full-time education or training, subsidised employment, voluntary work, the environmental taskforce and self-employment - offered to those who do not find work during the initial "gateway" phase. There is no sixth ption of staying at home on benefits.
Those forced to choose an option are often the most disadvantaged young people. Just 12,500 found jobs after completing the second phase compared to 76,000 who were placed at the gateway phase.
A spokeswoman for the Department for Education and Employment said that up to 26 per cent of those in full-time education and training get jobs and up to 59 per cent gain the qualification they are seeking. "These figures compare favourably with previous programmes," she said.
Mr Sherlock acknowledged the New Deal's success in finding jobs but said that many colleges were failing to provide tailored programmes and offering less than the stipulated 30 hours a week.
Paul Convery, director of the Unemployment Unit, an independent research body, was also critical. "The awful truth is starting to bite that the full-time education and training option is not doing as well as expected," he said.