Labour has pledged big rewards for further education colleges which forge effective partnerships with training and enterprise councils to meet goals set out this week in the policy paper Target 2000.
Traineeships and revamped Modern Apprenticeships with day-release for all 16 to 19-year-olds would replace the current Youth Training programme under Labour.
They are part of a Pounds 1.5 billion package funded partially by the likely abolition of automatic entitlement to child benefit post-16 and Pounds 550m from the axing of YT. Tax breaks of Pounds 60 a week will be available to employers who take on long-term unemployed under-25s, if they guarantee day-release or training for a recognised qualification.
The package, unveiled by Labour education shadow David Blunkett, was much leaked following early announcements of the employment package by shadow chancellor Gordon Brown at Labour's conference last autumn.
Labour then put colleges at the heart of plans to prevent young people dropping out. This included suggestions in its policy paper, Aiming Higher, to allow disaffected 14-year-olds to attend college part-time. The proposals have had a mixed reception from managers.
However, Labour this week stressed it did not intend to turn colleges into "sink institutions" but to give a new period of rapid growth and break the cycle of "draconian efficiency drives".
Bryan Davies, Labour's further education spokesman, said: "We envisage that colleges will play a central role in delivering high-quality learning to a generation of young people lost to education under the Tories."
He added that with annual spending of Pounds 3bn on colleges each year, the Pounds 1.5bn package for Target 2000 represented a significant area for potential expansion.
But it would only come through partnerships with other providers, particularly the training and enterprise councils which currently control the YT budget. Measures to bring about greater co-operation will be announced by Labour soon.
One-third of young people fail to reach national vocational qualification level 2 or equivalent (five GCSEs grade A-C) and while the majority of 16-year-olds stay on in full-time education, this drops to 59 per cent at 17 and 38 per cent at 18.
Some 600,000 people aged 18-25 are unemployed. A recent TEC report said the numbers of 18 to 20-year-olds dropping out of education and training costs the economy Pounds 350m a year. Those most likely to fall into the trap were young people without qualifications.
Labour's strategy is to raise success rates at NVQ level 2 to at least 85 per cent of 18-year-olds and improve careers guidance post-14s.
Ruth Gee, chief executive of the Association for Colleges, said: "We welcome the proposals as colleges have recognised for a long time that YT doesn't have the confidence of young people. But the detail of funding is still as yet unclear."