There is already the option of staying on in education after the age of 16. Students can stay at school, go to an FE college full time, or train and study part-time. At 18 there is the option of going into Higher Education (degree and/or HND level) so there is plenty of choice. 16 year olds can choose to work or choose to continue to study.
What the government is saying is that at the moment, some choose to do nothing at all and the plan is to keep them in education on a compulsory basis until they are 18.
The problem I can see with that plan is that some will stay in education because they have to, they will cause havoc, achieve no qualifications, leave at 18 and then still do nothing!
I think the most sensisble solution is more work-based training schemes in a variety of employment areas whereby youngsters can train and study for a skilled trade or other occupation.