The main force of the recession is yet to hit us but unemployment is surging. In its Pre-Budget Report the Government predicted that at the end of 2010 the number of unemployed on benefits would have reached 1.55 million. That total looks as if it will be passed a year and a half early.

The recession calls for a totally new, two-stage programme of welfare reform. But first we must acknowledge that the Government's New Deal and “making work pay” strategies have failed to get many unemployed people into work, even at the height of the boom. It has been an expensive failure - various tax credit schemes and New Deal projects have cost the taxpayer £75billion since 1997.

The results are derisory. In ten years, the number of jobless people of working age has fallen by only 400,000, down from 5.7 million. The record of each of the New Deals is depressing, in particular the Government's flagship New Deal to end youth unemployment. In the early years more than half of those on the New Deal for Young People landed a sustainable job (one that is held-down paid employment for 13 weeks or more). But at the top of the boom two thirds of New Dealers - 30 per cent of them “retreads” of the scheme - failed to find such a job.

This failure can be seen in the increased number of Neets (“those not in education employment or training”). There are now 1.1 million in Britain, more than when Labour took power in 1997.

There are many young people in my Birkenhead constituency anxious to work. But others have never worked and tell me that, as they are given £100 a week or more (with housing benefit) as a right, they wouldn't take a job for less than £300. When I suggest to them that no employer will offer them that kind of money because they can barely read or write, they tell me to take it or leave it.

It is terrible that we have abandoned a generation who believe they have got a pension for life. I once interviewed a group of unemployed youngsters who were anxious to work. Their contempt for the New Deal surprised me. Little wonder - it does not lead to work, it does not teach the skills that they need, and for many it is just an excuse to mess around.

After six months on benefit all those under 25 are enrolled on the New Deal. First, they must negotiate what is called a gateway. Up to four months are spent getting claimants ready for the world of work. If no job is forthcoming, they must choose one of four options: employment, membership of an environmental task force, voluntary placements or full-time training

All the New Dealers I spoke to had, through lack of choice, to take training. Whether it was suitable or not, the only training was for IT work. But there were not enough workstations to go round, making a mockery of the exercise.

Sanctions against bad behaviour or not turning up were conspicuously absent. Certainly there was no incentive for trainers to take a tough line; they risked losing their fees if they sent recalcitrant new dealers back to the Jobcentre. A key change that the Government wants to make is to pay New Deal contractors by results. But with programmes failing in the boom years, it is understandable that providers are squealing at such an idea. With unemployment rising, they want more of the old New Deal that gives them their fees upfront.

So what should be done? First, scrap the New Deal for Young People and recycle the money saved into green community programmes that lead to actual jobs.

These locally run projects would take young people who cannot find work and offer them training. It could be fairly simple: learning how to be a park warden or to insulate the roofs of pensioners. It should also teach new skills: the chance to earn plumbing qualifications by working for companies installing new, more efficient central heating. When they are trained, they could become full-time workers, paid the minimum wage, on these green projects

One of the biggest lessons the Government has yet to learn is that these schemes must be run locally. It is still drawing up mega-contracts with big companies for large-scale New Deal schemes like the ones that the disgruntled New Dealers described. Mega-contractors are replacing the sort of local providers I have met who were brilliant at tailor-making schemes that were relevant to New Dealers' needs. We need more schemes run by them.

The second prong of a new strategy must be directed at those now joining the dole queues. Many registering at Jobcentres for perhaps the first time in their lives are shocked that, after decades of making national insurance contributions, they are entitled to a mere £60.50 a week. This is the same sum that would be paid to someone who has never worked. It hardly reinforces the culture of work.

The jobseeker's allowance ought to be graded according to the number of years that a claimant has worked. It could be doubled to £121 for those with, say, ten years' of NI contributions and increased to £181.50 for those with 15 years. Work is part of their DNA - a more generous benefit payment will not stop them returning to work as soon as they can.

But more can be done to help these workers. Last year more than 120,000 skilled foreign workers came to work in Britain filling jobs that were not first advertised locally. Employers should register all skilled vacancies at Jobcentre Plus. Only then, when it is clear that a company cannot find suitable local labour, should permits be granted for non-EU skilled workers. The Government must seize the initiative now. If it doesn't, joblessness could become permanent for this older generation and the generation to come.

Frank Field is Labour MP for Birkenhead and the former Minister for Welfare Reform

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