Tackling unemployment was one of the key priorities of Tony Blair's government when it came to power in May 1997.

Cutting youth unemployment by 250,000 was one of the five pledges made during the election campaign.

The programme was considered so important that a special windfall tax on utility companies was introduced, raising �5bn specifically for this purpose.

Under the New Deal for Youth programme, all people under 25 who have been unemployed for six months or more are required to choose training, job placement, or work in the voluntary or environmental sector rather than remain on the dole.

The idea was to cut the cycle of poverty that might lead to the creation of an underclass of people permanently unemployed and alienated from society.

Since 1998, 470,000 young people have entered the programme. Of the 330,000 who have already left, 215,000 have found jobs.

But only 139,000 of those were unsubsidised jobs in the private sector which lasted more than 13 weeks.

Costs and benefits

The cost of the New Deal for Youth programme has turned out to be much lower than the government expected, as the overall rate of unemployment has fallen.

Originally just more than half of the �5bn windfall tax was earmarked for youth unemployment over the five years between 1997-2002.

But the actual spending has been just �615m, with the government estimating that the total cost will not top �1.5bn, a saving of nearly �1bn.

So has it been money well spent?

The government says that each job cost about �4,000.

However it claims that an equal amount has been saved from the social security budget by the reduction in unemployment benefit bills.

But critics say this calculation is flawed.

The House of Commons Education and Employment Select Committee points out that this �4000 figure includes jobs which were temporary and insecure, which are estimated to make up between 25% and 40% of the total.

Tessa Jowell, the government minister in charge of the programme admitted that "lots of jobs in our labour market now are very short-term jobs".

She added: "For many of these young people getting a short-term job is a very good thing, because it means that they start being in work, they stop being on benefit."

However, that is not the same a creating a permanent job. Making that the criteria would raise the cost to about �7,500 per permanent job.

In addition, no one is quite sure how many jobs unemployed young people might have secured work anyway, without the help of the New Deal programme.

This so-called 'deadweight' cost could be up to 60% of the total, according to the Select Committee. So overall, the New Deal may have been responsible for as few as 85,000 'new' jobs.

Limited effect

Research carried out by a group of economists and presented at the Royal Economic Society's annual conference confirms the limited effect of New Deal programmes.

It found that initially, participants in the New Deal pilot gateway programme were 10% more likely to find a job, of whom 6% went into subsidised jobs and 4% into unsubsidised jobs.

But as the whole programme expanded nationally, that rate was cut in half, with only 2% finding additional unsubsidised jobs.

According to Professor Richard Blundell, the principal author of the study, the problem is that as unemployment has fallen, those young people who have the skills to get jobs are able to do so, leaving the more difficult cases for the New Deal.

"The individuals currently unemployed are probably the least employable compared to those employed in earlier periods. This may imply that the impact of the programme is at a minimum in the current conditions," he concludes.

That does not mean that the programme was not worth undertaking. But it does demonstrate the limits of government action on unemployment.