Jobless 18- to 21-year-olds without a basic standard of English or mathematics will be denied benefits unless they return to classes to improve their skills.
Those who have been unemployed for six months will be required to accept a traineeship, take up work experience, or work in the community – or they will face the same sanction.
George Osborne said the moves, which would be piloted in some parts of the country from April, were designed to tackle a “culture of worklessness” among young adults.
They reflect concerns among ministers that dole queues are still high among the under-25s despite overall unemployment levels falling across the country.
There are still more than a million so-called “Neets” in Britain, people between the ages of 16 and 24 who are not in education, employment or training. Almost one in four young people aged 18 to 24 are out of work.
Mr Osborne also set out plans to help school-leavers find work through a £10m annual fund targeted at those aged 16 or 17.
“We will not abandon those who leave school with few or no qualifications,” the Chancellor told the Commons yesterday. “A culture of worklessness becomes entrenched when young people can leave school and go straight on to the dole with nothing expected in return. That option is coming to an end in our welfare system.”
He also announced that employers’ national insurance contributions are to be scrapped for staff aged under 21 – a move the Government hopes will encourage businesses to hire more teenagers.
But Frances O’Grady, the TUC’s general secretary, said: “Effective and immediate action is needed to tackle the youth unemployment crisis. Unfortunately all the Government has to offer is new measures to make young people work for free, when what is really needed is a job guarantee.”
Oxfam’s UK poverty programme director, Chris Johnes, added: “We are concerned that young people looking for work will be sanctioned if they aren’t in training or on a back-to?work scheme. They must be offered a good quality of employment instead of facing simply punitive measures.”