More than 350,000 young people are failing to achieve the benchmark qualification for 16-year-olds which would replace GCSEs in the proposals of a government task force published this week.
Mike Tomlinson's working group, which backs the biggest changes to secondary exams for 50 years, admits that the high standard set for the qualification for 16-year-olds could discourage some pupils from staying on at school.
Mr Tomlinson's proposed 14-19 reforms will require all pupils to pass courses in communication skills, maths and information and communications technology to at least GCSE grade C to gain a GCSE-equivalent diploma.
The move is a key element of the group's recommendation to replace GCSEs, A-levels and existing vocational qualifications with a four-level diploma system within 10 years.
But in 2003, only 43 per cent of pupils gained a GCSE at grade C or above in both English and maths. The group wants to make the GCSE-equivalent intermediate diploma at least as difficult as the present GCSEs.
The 100-page report concedes that setting requirements this high for the intermediate diploma could put off some youngsters from staying on in the sixth form, and asks for more feedback.
It says: "We... need to consider further whether, from the relatively low existing base of achievement, the proposals for mathematical skills and communication could provide a significant barrier to post-16 participation."
Mr Tomlinson, the former chief inspector, said radical reform was needed for at least five reasons, ranging from high drop-out rates among the over-16s to better coherence of vocational courses.
He said: "We need to create a system which will better serve the needs of all students, rather than just some of them."
The diploma would be set at entry, foundation, intermediate and advanced levels, though not all pupils would take the first two levels. Mr Tomlinson wants the advanced level to be more challenging than the present A-levels.
The new framework could herald the break-up of traditional year-group teaching because students sit the various levels when they are ready.
"Every teacher in the land knows that young people do not progress in their learning at the same rate," said Mr Tomlinson.
Besides communication, maths and ICT, the compulsory core of all diplomas would include a personal research project of the student's choosing.
Skills such as team-working, problem-solving and international citizenship would be part of the qualification, but not necessarily assessed as separate subjects. Beyond this students could complete an "open" diploma, similar to A-levels and GCSEs, with free choice of subjects.
They could also choose from "specialist" diplomas, more prescribed vocational or specialist academic courses drawn up by employers and universities.
Students dropping out of education would still get credit for courses completed and could continue with their diploma later. Individual academic courses within the diploma - the successors to GCSEs and A-levels - would themselves be graded, as might the diploma itself.
And employers and universities would have access to portfolios, or transcripts, setting out details of youngsters' achievements in each subject.
To cut the assessment burden, coursework in individual subjects would be replaced by the research project. There would be more teacher assessment of pupils' routine work and a "lighter touch" system of external checks on marks given by teachers. Mr Tomlinson said only one exam board should award the diploma.
Teachers' unions and other groups, including independent school heads, broadly welcomed the report. Gareth Matthewson, of the National Association of Head Teachers, said: "At last we have a long-term vision for a 14-19 education system."
Even the Conservatives applauded several aspects, though the Liberal Democrats said the changes needed teachers' backing.
However, the Confederation of British Industry dismissed the plans as "confusing". The group will consult on its plans before producing a final, more detailed report in September. Ministers, who have backed reform but not committed to the group's findings, will then respond.
leader 22, FE Focus 1 What do you think of the plans? View the report at www.14-19reform.gov.uk.
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* Four-level diploma to replace A-levels, GCSEs and vocational qualifications within 10 years.
* All diplomas to have a compulsory core: communication, maths, ICT, plus a research project. Skills including problem-solving, independent learning and teamworking to be assessed in each diploma.
* Students free to choose from "open diplomas" (compulsory core plus choice of academic subjects) and "specialist diplomas" (prescribed vocationalspecialist academic courses).
* Youngsters leaving education to get credit towards diplomas they have not yet completed.
* Diplomas at each level to include some courses set at a lower level, to promote progression.
* Improvement in advice available to students on future options.
* Less coursework and more teacher assessment of pupils' routine school work.