Urgent action to improve the education of “the bottom half of our young people” is vital to future prosperity, Professor Richard Layard, director of the Centre for Economic Performance at the London School of Economics, warned.

Outlining his “revolution” to the Institute of Directors’ seminar last week, Professor Layard said: “We have tried the voluntary principle, and it has not worked.

“We should say to both individuals and employers that anyone who has not achieved [national vocational qualification] level 2 has got to go on studying until they are 18 on day release or full-time. Employers would have to ensure individuals are released to go to college at least one day a week.

“It would be helpful to express this in terms of some kind of legal requirement but you hope that people will accept it as the norm quite quickly. ”

Critics worried that such measures would deter companies from employing young people, but Professor Layard was adamant. He said: “We are saying to the corner shop, either you take this person on or, if that is too awkward, we cannot afford young people to have such a poor start in life.

“If we find fewer employers willing to take on 16 to 18-year-olds, then the individuals will have to stay in full-time vocational training until they are attractive to the kind of employer who can provide them with a job with prospects.”

Professor Layard - a former chairman of the European Commission’s macroeconomic policy group and founder of the Employment Institute, an organisation which presses for measures to tackle long-term unemployment - said high educational standards, combined with freedom of markets, were crucial to economic growth.

Failure to improve Britain’s workforce would lead to huge unemployment and rapidly falling wage levels. While Britain’s higher education compared well internationally, nearly half of 25 to 28-year-olds lacked any qualification at level 2 - a “truly awful” situation, he said.

The problem lay not so much with the specific training provided by employers, but with the lack of basic skills - and the remedy would have to be funded by the state. The Government was having difficulty filling its modern apprenticeship scheme - equivalent to level 3 - because of a shortage of people at level 2 able to take it up.

“For degree-level qualifications, we have accepted that the tuition cost is something that the state finances but we have not applied the same principle to sub-degree vocational training. It is quite outrageous.

“University students will have to pay maintenance. These resources have got to be used to provide public finance for sub-degree vocational training.”