Deputy prime minister Nick Clegg's Youth Contract offers employers up to £2,275 for taking on a young person who has been out of work for at least six months.
It was launched last year in a bid to tackle record youth unemployment levels.
However, figures published yesterday revealed it has only paid out for 4,690 young people into long-term work between June 2012 and May 2013. This is significantly behind the target.
Labour shadow work and pensions secretary Liam Byrne said the figures proved the scheme is a "disaster".
"The Youth Contract has utterly failed to get our young people back to work. This flagship scheme is on course to miss its target by more than 92% - no wonder there are still almost a million young people out of work," said Byrne.
He added: "The welfare revolution we were promised has fallen apart. The Work Programme doesn't work, universal credit is disappearing into the sunset, and now we know that the Youth Contract has been a disaster."
Slow start
The DWP said the scheme "has encouraged UK businesses to offer over 21,000 jobs to young people at risk of long-term unemployment". But added wage incentives have only been paid out to 4,690 young people, as these payments can only be claimed after someone has been in work for six months.
It admitted that take up of the incentive scheme "got off to a slow start" but claimed it is now on a clear upward trajectory.
"Through the different elements of the Youth Contract this Government is delivering on our commitment to offer young people the best chance to get on in life, but we're not complacent about the scale of the challenge still facing us," said minister for employment Mark Hoban.
Communication rethink
Kate Shoesmith, head of policy at the Recruitment and Employment Confederation (REC), said it's time to revisit how this scheme is being communicated to employers.
"Today's figures don't show us how many employers used the incentive but the likelihood is that even fewer employers than young people are aware of this funding," said Shoesmith.
"Not a single employer we surveyed in May had used the Youth Contract. If ministers really want to make this programme work, the Government needs to deliver a proper communication exercise targeting employers."
This month's Office of National Statistics (ONS) revealed youth unemployment fell by 20,000 to 959,000, putting the jobless rate of 16 to 24-year-olds at 20.9%.
