Social services departments which fail to prevent teenage pregnancies could lose out on funding.

The warning comes in the major report from the Social Exclusion Unit on plans to tackle teenage pregnancies, published earlier this week.

Social services will be required to demonstrate that they have taken practical steps to prevent teenage pregnancy in Quality Protects plans. "Adequate plans will be a condition of receiving the Children's Social Services Grant from 2000," says the report.

But a spokesperson for the SEU said the plan was not to snatch cheques from social services departments but to ensure they give reasonable priority to preventing pregnancies.

The Department of Health and Department for Education and Employment are also to produce joint guidance for social workers and youth workers making it clear that they can, and should, direct teenagers to seek advice and contraception if they are sexually active.

A co-ordinator responsible jointly to social services and health authorities in each area will identify services and encourage a multi-disciplinary approach.

In response to the work by the SEU, the government announced that by 2003 all single mothers, under the age of 18, who are unable to live with relatives will be placed in supervised hostels.

Local authorities are to be responsible for ensuring adequate provision but they will not necessarily provide the facilities. A total of 15 pilot schemes are being set up to decide the correct mix between social services, voluntary agency and health authority involvement.

Most hostels for teenage mothers are provided by the Foyer Federation and Centrepoint. Although seven in ten of under 18-year-old mothers live at home, 2,000 have council flats.

Health minister Tessa Jowell announced that £60 million would be spent during the next three years in an attempt to halve teenage pregnancy rates by 2010.

The UK has twice as many teenage births as Germany and six times the Dutch rate. In England in 1997 90,000 teenagers became pregnant - the under-16s accounted for 7,700 births.

About £26 million has been earmarked for early action in areas with the highest rates of teenage pregnancy.

The Department of Social Security is to consider how benefits might best support this policy. Figures show 90 per cent of teenage mothers receive Income Support. Mothers aged 16-17 will have to attend interviews under the single gateway pilot schemes to discuss education, training and work options ,although take-up will be voluntary.

Young fathers will be actively pursued by the Child Support Agency and even if they are unemployed they will have to pay £5 a week.

Parenting and sexual health classes will be made compulsory in all young offendersinstitutions, as figures show 25 per cent of the 11,000 inmates have fathered children.

British Association of Social Workers assistant director Graham Fanti welcomed the emphasis on prevention so long as it avoids a moral tone.

"There is going to be a different service provision, delivered by different agencies in different areas but what is important is that young people receive the advice and support they need. Education and social provision is important but these will have limited impact in the absence of free contraception and advice," he said.

Anthony Douglas, a member of the Association of Directors of Social Services' children and families committee, said the government's use of threats was familiar but there was no reason to doubt local authorities' abilities to meet the required plans.