Many young people are leaving school without basic literacy and numeracy qualifications that employers demand, a new report has warned.

The study by the Centre for Cities, a non-partisan urban policy research unit, has also suggested that low grades in major subjects will not only have an impact on young people's future but also directly affect the economies of the cities they live in because businesses there will face a mismatch between skills acquired and skills needed.

The report, titled Learning Curve: Schooling & Skills for Future Jobs and sponsored by the ICAEW, comes at a time when youth unemployment is at a record high in the country. It also highlights the need to revamp the education system, support growth and make the economy more competitive.

Between 2007 and 2010, an average of almost 50 percent of pupils in the cities left the education system without A* to C grades in GCSE maths and English, according to the survey.

The detailed document highlights the need to ensure the skills base necessary to meet the aspirations of a competitive economy in the long run.

Most notably, there is an obvious correlation at city level between GCSE maths and English attainment and youth unemployment. The research shows that cities perform at a similar level when you measure performance of GCSE A* to C grades across all subjects, but strikingly there are huge disparities between cities when looking at pupils' performance in maths and English.

The research group argues that due to a misalignment of incentives in the education system, schools are currently encouraged to strive for their pupils to attain 5 A* to C grades, even if these grades are achieved in less academic subjects. The schools are responding to the demands of an accountability system overlooking the importance of maths and English, the researchers believe.

The Centre urges the government to go further in its current plans to reform school league tables to ensure that the education system is aligned with the needs of businesses.

More weightage should be attached to maths and English attainment when measuring school performance in order to incentivise schools to focus on these core subjects.

The Centre also calls for the Pupil Premium to be used by local education authorities in cities to help teachers who have the demanding job of helping their pupils to attain qualifications in maths and English.

"Schools have been judged on qualification-driven league tables that do not differentiate in terms of subjects taken. This acts as a disincentive for schools get good grades in what might be perceived as the tougher subjects like maths and English. This is more evident in cities with high youth unemployment, where a cycle is being reinforced because young people are not leaving education with the skills businesses need," feels Joanna Averley, Interim Chief Executive of the Centre.

"We know that schools in some areas have a really difficult task, but the system must incentivise schools to support pupils to get good qualifications in maths and English. The government has taken steps to address this issue, but they could go further. This rebalancing is needed urgently to ensure schools are equipping young people with the basic numeracy and literacy skills they will need to get a job."