The first chapter in this week’s Smarter Government paper is about the role of citizens and civic society in helping to deliver efficiency savings. But the government has missed a trick – apart from a single mention of volunteering, the paper has disappointingly little to say about the role of citizens in meaningfully delivering public services.

This is a shame: this week, Demos published Service Nation, which argues that a well-designed national civic service scheme could help to ease the strain on public services in these tight times. More than that, however, it could expand opportunities to a group of young people failed by the system – including the one-in-five 16 to 25 year-olds who are currently not in employment, education and training.

The principle behind a national civic service is not so different from those underpinning national military service, abolished back in 1960. It rests on the ‘we’re in it all together’ values commentators so often decry as missing in today’s Britain: as members of the same society, we owe something to each other as well as ourselves.

But the case for a civic service rests on more than this normative vision alone – the evidence suggests that it can bring real benefits. Young people who have taken part in service schemes in the US and Canada see a boost to skills like motivation, teamwork and communication, valued so highly by today’s employers. These are skills our education system, over-burdened by bureaucracy and SATs, is generally poor at developing in children. And the benefits kick in even younger: taking part in social action projects while still at school is associated with better results, higher engagement with school, and lower risky behaviours.

Service schemes can also offer real benefits to the communities in which they enable people to serve. City Year places young Americans aged 18 to 24 in deprived, inner city schools. Results in these schools improve as a result of the mentoring, tutoring and extra-curricular activities City Year corps members provide. Evidence suggests that the mentoring of offenders in the criminal justice system leads to lower rates of reoffending.

To some extent, however, the case for service has been won with British politicians. Both Gordon Brown and David Cameron have backed forms of service: Brown announced an ambition that all young people should do 50 hours of community service by the age of 19, and David Cameron supported the idea of a summer service scheme for 16 year-olds post-GCSEs back in 2007. Both of these are to be welcomed as a step in the right direction.

But a 21st century national service scheme needs to look different from national military service of wartime Britain more than just in terms of content. A ‘one-size-fits-all’ scheme for one particular age group will not work for everyone. This was a strong message that emerged from a deliberative democracy event we held with 54 young people as part of the research. If it is to be a success, a service scheme needs to span school to retirement and be flexible enough to allow different people to serve. Mixing up age groups – graduates with young jobseekers, retired people with schoolchildren – would also mean the scheme has a better chance of tackling some of the poorest adult perceptions of young people in Europe.

This is why our report recommends a range of different options for people to serve. A service nation needs to be founded on service in schools – undertaking a social action project should be a compulsory part of the 11 to 16 curriculum. After this, there would be a range of options, including service NVQs for 16 to 18 year-olds in full-time education, gap year-style service schemes for 18 to 24 year olds, an expansion of postgraduate service schemes such as Teach First, and opportunities for employees to take part in service. University students should also be expected to undertake an hour of service a week during term time in recognition of the £15,000 subsidy they get from taxpayers towards the cost of their higher education – and that’s before we take into account the cost of grants and loans. Service should be for everyone, not just the young people who have been failed by the system.

Perhaps the biggest question is how to fund the £450m such a service scheme would cost. In the long term, there is evidence that well-run service schemes can return more than double the initial investment in economic and social value: but upfront investment needs to be found from somewhere.

We have suggested the money could come from a 2.5% interest on student loans, raising £1.2bn a year. As numbers expand, asking university undergraduates to contribute more towards the costs of their education is fair: they go on to earn, on average, £600,000 more over their lifetime than non-graduates. While critics say this would put students off, countries such as the US and New Zealand – where students contribute more to their education – enjoy higher participation rates than the UK. In our proposals, some of the savings would be used to fund means-tested grants for all young people doing service. This is about expanding opportunity to a broader group of young people than those fortunate enough to get to university.

The Labour party has historically been the party characterised by a concern for social mobility and communitarian values. Labour politicians need to translate their interest into a commitment for a proper national service scheme.