Small businesses are urging the government to extend a graduate paid internship scheme in England in order to help mitigate the problem of graduate unemployment.

The scheme, which has supported 8,500 paid internships since it was launched in February, is set to end next month. The proposed extension would create a further 5,000 internship placements at a cost to the government of about £8 million.

However, the Federation of Small Businesses has said that this cost would be outweighed by the advantages of less benefits payments and more tax revenue.

The Federation’s chairman John Walker said "The current graduate internship scheme has proved highly successful, with some interns going on to start their own companies and others being offered full-time positions with the business they interned for”.

He went on to stress the importance of programmes like this following the rise in youth unemployment "The UK's young people are the future of the economy, yet we are seeing youth unemployment approaching one million. It is time that the government invested into this vital sector so that we don't see a generation of youngsters consigned to the dole queue”.

Recent figures from the Office for National Statistics put Youth unemployment at 2.5 million, a rise of 44,000 in the last three months, and setting a new record high. However the Federation of Small Business, Innovation and Skills said no final decision had been made on the internship scheme’s future.