Thousands of teenagers are dropping out of education at a yearly cost of £814m thanks to a ‘bums on seats’ approach to schooling, research suggests.

Council leaders warned youngsters were being ‘failed’ by an approach to post-16 education that funds schools and colleges based on student numbers rather than offering correct courses.

The Local Government Association (LGA) said stronger town hall powers over education would allow councils, schools and colleges to ensure young people were offered the right courses to gain skills for local jobs.

Analysis by the Centre for Economic and Social Inclusion for the LGA suggests 12% of all government spending on post-16 education and skills is lost thanks to students failing to complete qualifications or quitting courses early.

Figures show 178,100 16-18 year olds failed to complete post-16 qualifications started in 2012/13.

Cllr David Simmonds, chairman of the LGA’s children and young people board, said: ‘Councils are having success in helping young people that do drop-out back into learning but fear a failure to reform the centralised “bums on seats” approach to funding further education could leave too many teenagers at risk of dropping out or without the skills needed to get a job.

‘Local councils, colleges, schools and employers know how to best help their young people and should have devolved funding and powers to work together to give young people the best chance of building careers and taking jobs that exist locally.’

A Department for Education spokesman said: ‘We have invested £7.2bn to fund a place for every 16- and 17-year-old in England who wants one.

‘We are reforming academic qualifications and vocational education to ensure young people get the knowledge and skills that they need to move into a job.’