The party needs all the support from industry it can get since the windfall tax on private utilities will not cover the increased cash needs of colleges expected to provide part of the training for up to 700,000 under-25s promised jobs in the first year of a Labour government.

While the Confederation of British Industry is sceptical of the tax, director general Adair Turner said: “I share shadow Chancellor Gordon Brown’s desire to eradicate youth unemployment.” His views are shared by leaders of the training and enterprise councils and voluntary sector employers.

The job creation programmes in the first year of a Labour government would aim to prevent 400,000 18 to 25-year-olds joining the dole queue and mop-up 300,000 of longer-term unemployed. Employers would receive between Pounds 60 and Pounds 75-a-week rebate for taking them on. Voluntary-sector employees on the scheme would be given a Pounds 20 boost to their Pounds 55-a-week benefits payments.

The incentives are in return for training guarantees, including release for FE studies. The 21-hour rule (soon to become a 16-hour rule) which limits the time unemployed people can study without losing benefits, would be abolished.

The package was also welcomed by college leaders. Ruth Gee, chief executive of the Association for Colleges, said: “We have long urged the need to recognise the value of ‘capability for work’ and not just availability for work.”

Labour’s old guard at the annual conference in Brighton were less willing to see the package as radical.

They also pressed for a substantial commitment to increased student grants with a commitment to “a living grant for all students in post-16 education”.

The proposals were rejected by shadow education spokesman David Blunkett who warned that they would cost in excess of Pounds 10 billion extra to the commitments already spelled out in the jobs and training package.