People who face unemployment in their early adult years often carry the ‘scars' of their experience throughout their lifetime, to immense detriment on future employment prospects, health, and potential for involvement in crime. With the latest statistics showing the UK's youth unemployment rate standing at 20% (more than twice the 8% unemployment rate for all ages) it is clear that action has to be taken. A new form of commissioning arrangement - the Social Impact Bond - could make an important difference.

Since May 2010, the Government has substantially reshaped the scale and objectives of interventions for those who are already unemployed. Yet it has left neglected a separate, but vital agenda on ways to promote employability among those on the cusp of leaving school or college.

Although school years are ‘the best time of our lives' for many, others find them dull and dispiriting. In a MORI poll in 2009, only 19 per cent of the 11 to 16-year-olds asked saw ‘a sense of achievement' as a benefit of learning. That in turn all too frequently leaves them in a difficult position in making a transition to employment. Analysis by the Social Exclusion Unit has found that, even during a relatively prosperous year, more than 25 per cent of 16 year olds without qualifications have no employment or education opportunities - compared to just 1 per cent of their counterparts with 5 or more GCSEs rated A to C.

Part of the answer has to be better careers advice - setting out feasible but rewarding ambitions that encourage young people to act positively, and put themselves in a good position to prosper. Sunderland's Every Single Person programme, for example, commissioned project workers in regeneration areas to deliver one-to-one support to young people 'at risk' of disengaging from school - helping them instead to achieve their goals, from working with cars to becoming an IT technician, from gaining placements in the local hospital to joining the Royal Navy.

Unfortunately, such high quality advice and support programmes are frequently a low priority for schools. The work needed to effectively support vulnerable and disengaged young people into employment is often outside their core competencies. Nor can local authorities be expected to rush in to fill the gap. Studies for Total Place highlight a lack of funding to set up specialist support and consequent inaction. Other sources of funding are needed to pay for interventions, and such funds are increasingly hard to come by. Social Impact Bonds (a concept developed by the Young Foundation in collaboration with Social Finance in 2008), offer a way forward by obtaining the necessary up-front funding that will enable organisations to act to reduce unemployment in the near - and long-term.

SIBs are an agreed contract in which investment from a range of potential sources (including potentially philanthropy or private finance) fund a package of interventions to tackle a priority issue. If desired outcomes (such as a fall in the number of young people becoming NEET) are met, then the payer (a Government department, for example) remits an amount equivalent to the cost of the initial investment, plus a rate of return of the order of 7.5% or more.

In the case of youth worklessness, the parts of the public sector that stand to gain from preventative activities include criminal justice organisations (from reduced crime), HM Revenue and Customs (from increased income taxes) and DWP (from reduced welfare payments). An agreement from one or more of these organisations to pay out on better employment outcomes would create sharper incentives for local areas to act in ways that reduce longer term costs. Crucially also, preventative action to reduce unemployment would act to complement, rather than cut across, the DWP's Single Work Programme for those who are already unemployed.

Our preliminary analysis and research shows that preventative action with young people aged 15 and 17 at risk of becoming unemployed because they are disengaged from school or college brings expected savings to central government that more than outweigh the initial investment into the SIB. There is much more work to be done to firm up the business case, engage potential funders and payers, and to move towards the delivery stage. But the implementation of this - or other schemes that can boost preventative action - are essential if the levels of youth unemployment are not to reach even greater unfortunate heights.

Read more about the Young Foundation's work on Social Impact Bonds.