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Millions spent to give students pound;30

More than an eighth of the pound;257 million earmarked to pay teenagers to stay on in full-time education this year will be spent on red tape, the Government has admitted.

Schools, colleges and Capita, the private company administering education maintenance allowances, will share pound;37m to administer the grants.

The scheme pays up to pound;30 per week to 16 to 18-year-olds from low-income families who remain in school or college.

The figures show Capita, the private company pilloried two years ago for its running of the Criminal Records Bureau, has earned more than pound;114m on contracts for the Department for Education and Skills since the last election.

The allowance scheme was extended nationwide in September but has been criticised for being too bureaucratic and confusing for students. By the first week in October, 330,000 applications had been submitted for the money but only 238,000 students have so far received any.

Ministers hope the allowance will help to increase the number of school-leavers who stay on in full-time education.

Figures published by the Organisation for Economic Co-operation and Development show only three-quarters of young people aged 15 to 19 are in education, placing the UK 24th out of 27 countries and behind Greece, Hungary and Slovakia.

Ivan Lewis, junior education minister, gave details of the allowance's costs in answer to a parliamentary question from Barry Sheerman, chair of the education select committee.

Mr Sheerman said that the administration costs "seemed a bit high" and said he planned to quiz ministers further about them.

John Bangs, head of education at the National Union of Teachers, said teachers supported the scheme, but he added: "Money must not be diverted from the pockets of students into the profits of private providers."

A DfES spokesman said the number of students receiving the allowance is rising by 1,000 per day.

"The maintenance allowance contract with Capita was announced in September 2003, valued at pound;48.4m over five years.

"The planned cost profile is slightly higher in the first set-up year, then falls to a steady rate of approximately pound;10m," he said.

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