The British government has been accused of preparing to hit low-income families in order to pay for Deputy Prime Minister Nick Clegg’s flagship youth employment programme.

The launch of the £1 billion Youth Contract – after ministers had previously scrapped Labour’s Future Jobs Fund – was widely seen as a victory for the Liberal Democrats in the coalition.

Under the programme at least 410,000 work places will be found for 18 to 24-year-olds, with wage subsidies worth £2,275 handed to employers to take on 160,000 young people. It will also create additional work experience places and £50 million will be spent on helping 16 and 17-year olds into training.

Launching the scheme in Leeds, Mr Clegg described youth unemployment as a “slow-burn social disaster” and said the country could not afford to consign its young people “to the scrap heap”.

However he refused to be drawn on reports that, in order to pay for the scheme, Chancellor George Osborne was set to squeeze working family tax credits when he delivers his Autumn Statement on Tuesday.

“This £1 billion isn’t paid for by one particular tax or one particular welfare change. That isn’t how it works,” he told the BBC. “We will make a number of changes.” Prime Minister David Cameron’s official spokesman also declined to comment, saying: “All I can tell you is that we have prioritised new funds for this.”

For Labour, shadow work and pensions secretary Liam Byrne said it was the “squeezed middle families” who would be hit under the government’s proposals.

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