The party leadership is launching a major review of the grants and benefits currently available to 16 and 17-year-olds, which will eventually underpin this week’s announcement of compulsory further education for school-leavers without basic skills qualifications.

With the party’s intended abolition of Youth Training - which pays a Pounds 29 weekly allowance - and planned withdrawal of Child Benefit for 16 and 17-year-olds in full-time education, many families would need financial help for their children to stay on at school or college as Labour wants them to do.

Such help would probably have to be available to all teenagers staying on in education, not just those compelled to do so through lack of qualifications. Accordingly, the party may have to consider some element of means testing.

Steve Byers, Labour’s training spokesman, said: “Maintaining the status quo is not an option when a family on Income Support effectively loses their child benefit, while a family with a child at Eton or Harrow continues to receive it. Our task is to provide a fairer system of financial support post-16 which encourages participation rather than putting hurdles in front of it.”

Leading the review, which is not likely to report much before the end of the year, will be shadow chancellor Gordon Brown, education and employment spokesman David Blunkett and social services spokesman Chris Smith. Cash available for redistribution would include child benefit and the youth training maintenance allowance as well as discretionary grants and possibly some element of the planned windfall tax on public utilities. Sources stress that the review is unlikely to begin for a week or two and no decisions have yet been made.

However, the row over the removal of some child benefit looks likely to continue until Labour completes its financial deliberations.

Balbir Chatrik, director of Youthaid, said her research into the Department for Education and Employment’s planned spending on Youth Training for the financial year 1997-98 made her believe it would be possible for Labour to fund its proposals without raiding child benefit.

She added: “We would welcome greater choice and opportunities for young people, and we will have to look at the fine print to see if they are going to provide that.” At present, many teenagers could not afford to stay on in education because their families were unable to afford such basics as a bus pass to college.

Target 2000: Labour’s plan for a lost generation, which the party published this week, outlines how they plan to tackle youth unemployment and training. The paper stresses that just 59 per cent of 17-year-olds are still in full-time education - a figure lower than any other Organisation for Economic Co-Operation and Development country except Turkey - and more than a third of young people do not achieve the equivalent of five good GCSEs by the age of 19. The document blames this lack of skills for youth unemployment, and adds: “The result is a severing of the ties which should bind individual and society together. These young people have no stake in society.”

It proposes that Youth Training, which costs more than Pounds 500m a year, should be abolished in favour of an operation intended to get all young people qualified to intermediate level (5 good GCSEs or an NVQ level 2) by 2000 unless they have particular special educational needs preventing such an achievement.

All under-18s without level 2 qualifications - including key skills - should be studying for at least six hours a week, and employers will be legally obliged to ensure that this happens. This appears to be the only part of the proposals for which legislation would be required.

The Careers Service, to be renamed the Personal Development and Guidance Service, will interview every 14 to 18-year-old once a year.

This will ensure that those who have left school without intermediate qualifications are studying full-time if they are not in work, an obligation which will only be waived in exceptional circumstances.

Funds allocated to youth training - excepting the maintenance element - will pay for the programme.

Another part of the proposals on which further work is necessary is the planned programme for young people who have failed to reach even Level 1 attainment.

The party plans further consultation on how this could be done, but stresses that it would be an educational rather than a training programme.

The Target 2000 strategy includes plans previously announced by Labour to reform the 14 to 19 curriculum and tackle unemployment among 18 to 25-year-olds.