Few issues did more to discredit Margaret Thatcher than the huge rise in joblessness during her premiership. The Tory belief that unemployment, in the words of the former chancellor Norman Lamont,was a "price worth paying" to limit inflation, created a lost generation of young people. The figures released on 16 February, which show that youth unemployment has reached 965,000 (20.5 per cent), the highest level since records began in 1992, are a sign that the coalition government risks repeating this error.

In opposition, the Conservatives rightly drew attention to Labour's failure to reduce the number of "Neets", young people not in education, employment or training. But in government, they have failed to improve on this performance. On the contrary, they have made a bad situation worse. Since it came to power, the coalition has announced that it will scrap the Future Jobs Fund, abolish the Education Maintenance Allowance (EMA) and offer 10,000 fewer university places than Labour. These policies, combined with the government's premature fiscal retrenchment, will worsen the plight of Britain's young people.

Initial research by the Department for Work and Pensions suggests that the Future Jobs Fund, which provided 18-to-24-year-olds who had been out of work for six months with temporary employment, has been a success. Fifty per cent of participants moved off benefits after their placement. The Labour MP Frank Field, who serves as an adviser to the coalition on poverty, called it "one of the most precious things the last government was involved in, a lifeline that no amount of 'New Deal' rhetoric ever offered the unemployed". The government's decision to remove support at exactly the moment when public-sector redundancies are likely to peak is symptomatic of its complacency.

Consequently, George Osborne maintains his faith in the ability of the private sector to generate jobs. But a sector that created a mere 300,000 jobs between 1993 and 1999 is unlikely to produce more than two million between now and 2015. Past experience suggests that the economy needs to grow at a rate of 2 per cent if unemployment is to fall. But the National Institute of Economic and Social Research predicts growth of just 1.5 per cent in 2011 and 1.8 per cent in 2012.

During the general election campaign, David Cameron promised to keep the EMA, a popular policy which ensured that thousands who might have joined the dole queue remained in full-time education. Since then, the coalition has defended its decision to abolish the payment of up to £30 a week on the basis that 88 per cent of recipients would have stayed on at school without it. Yet an analysis by the Institute for Fiscal Studies found that the cost of the policy is "more than recouped" by the increase in productivity that results from 16- and 17-year-olds staying on in education for longer.

Speaking to our assistant editor Sophie Elmhirst (page 32), the employment minister, the Conservative MP Chris Grayling, describes the youth unemployment figure as "something of an illusion", as nearly 300,000 of the total are full-time students looking for part-time work. But the rise in unemployment since May is entirely among those who are not in education. While their number has risen by 64,000, the number of unemployed students has fallen by 20,000.

History teaches us that those who suffer early unemployment are often scarred for life, as our economics editor, Professor David Blanchflower, reminds us on page 37. A period of joblessness of one year or longer when young can reduce wages by 15 per cent even 20 years later. Owing to
a demographic spike between 2000 and 2007, when the number of 18-to-24-year-olds rose by one million, the odds have been stacked against young people.

In response, the government should reverse its decision to abolish the EMA, offer wage subsidies to firms that increase apprenticeships and introduce a two-year National Insurance holiday for anyone under the age of 25. For now, however, the truth is clear: the coalition isn't working for the jobless.