A £180 million bursary scheme to help the poorest teenagers will replace the Education Maintenance Allowance (EMA) which was controversially scrapped last year, Michael Gove announced today.
The initiative will be made up of two parts - a guaranteed payment of £1,200 per year for a small group of the "most vulnerable" teenagers, and a "discretionary fund" for schools and colleges to hand out, the Education Secretary said.
The announcement comes months after the coalition Government scrapped the EMA, a weekly payment of between £10 and £30 given to the poorest teenagers living in households earning less than £30,800 a year, to help them stay in education.
At £180 million, the new scheme is worth less than half of the old EMA, which had annual funding totalling £560 million.
Mr Gove told the Commons that the new scheme is designed to help vulnerable 16-19-year-olds stay in education.
Under the new initiative, around 12,000 16-19-year-olds who are in care or who have just left care, or who are on income support, will be given guaranteed yearly bursaries of £1,200.
Schools and colleges will be told that they can distribute the rest of the money to any student they feel faces "genuine financial barriers" to staying in education, such as the cost of travel, school or equipment.
The payments can be paid weekly, monthly or annually, and could be linked to attendance or behaviour.
Mr Gove said: "We are expanding apprenticeships, expanding technical academies, and today we are proving targeted financial support for the most vulnerable 16-19-year-olds.
"£180 million will be available for this bursary fund, enough to ensure that every child eligible for free school meals who chooses to stay on could be paid £800 per year - more than many receive under the current EMA arrangements."
But shadow education secretary Andy Burnham accused Mr Gove of "slashing funding for young people who need help to stay on in education".
He said: "Young people are bearing the brunt of this shambolic Government. At a time when they should be looking ahead to exams, they are worrying about whether they will have the financial support they need to stay in education - it's a betrayal of young people and will lead to more of them dropping out.
"With youth unemployment at nearly one million, this Government should have kept their promise to retain EMA instead of risking a lost generation of young people."
Ministers' decision to scrap the EMA last year proved highly controversial, with demonstrators taking to the streets to voice their concern alongside those protesting against the university tuition fee hike.
Campaigners warned that scrapping the grant would affect thousands of youngsters who rely on the money to help fund their studies.
Christine Blower, general secretary of the National Union of Teachers, said today: "This announcement shows that Michael Gove has been unable to ignore the tens of thousands of people who campaigned against the Government's decision to get rid of the EMA. However, he has gone nowhere near far enough.
"EMA helps to keep our young people in education. We know from students that it helps them to pay for essentials such as transport, books and lunch. Young people engaging in education is essential to social justice and to our economic future.
"Michael Gove's announcement cannot disguise the fact that the Government is slashing funding for EMA by two-thirds. A much smaller number of young people will get help from this vital allowance."
Brian Lightman, general secretary of the Association of School and College Leaders (ASCL), said: "School and college leaders will be relieved that the Government has listened to their concerns about the abolition of the EMA and the harmful effect it would certainly have on efforts to improve social mobility.
"It has been very clear during recent months that young people from the most disadvantaged backgrounds already were being forced to reconsider their decision to remain in education.
"While the new fund is only a third of the money available under the EMA, it will still go a fair way toward helping the most disadvantaged students."
Shane Chowen, Vice-President (Further Education) at the National Union of Students (NUS) said: "We've won some major concessions from the Government and it is clear that tireless work of NUS, Save EMA and MPs of all parties have stopped some of the worst excesses of this policy. However, this new package is still a shadow of its predecessor and it is not even clear if this last minute addition is new money or has been raided from careers guidance budgets.
"Almost £400m is still being cut from support to young people and EMA, which has been proven to work by every measure available, is still being scrapped. Those who will receive automatic payments represent a tiny percentage of those eligible for EMA."
Sally Hunt, general secretary of the University and College Union said: "While I'm pleased that the government has committed to continuing financial support for current EMA recipients and for families on income support, their U-turn doesn't go far enough.
"For all the talk of more targeted support the bottom line is that £390m is being cut from allowances and we still face the prospect of thousands of poorer students being priced out of studying.
"While it is good that pupils from families on income support will be guaranteed funding, many future students, who would currently qualify for the EMA, will be left without the assistance they need to stay on at college."
Martin Freedman, head of pay, conditions and pensions at the Association of Teachers and Lecturers (ATL) said: "We give a lukewarm welcome to Michael Gove's agreement to protect the EMA payments for those already in receipt of it.
"But we are deeply unhappy about schools and colleges being allowed to decide which new students should receive the EMA replacement and how much they will receive.
"This is likely to lead to a postcode lottery in bursaries with similar students receiving different amounts depending on which college they attend."