Hopefully the premier league will knock this proposal down.
All this will do is cause the likes of Lennon to go for £50m and paid 200k a week, meanwhile top prospects will start earning 50k or so before they turn 18. With so much money these players (with the exception of few) will rest on their laurels and stop improving or working hard - something we even see now. lower leagues might benefit with a lot of transfers as the premier league clubs attempt to sign decent British players, but very soon the Premier league will be diluted as a result of an abundance of average homegrown players. This could negatively impact the European spots granted to England, and further TV deals may decrease in value, potentially pushing the PL in the same direction as the serie A.
Meanwhile other leagues without the disadvantages of restrictions will improve their product while their already impressive youth setup will continue producing great players for the national teams
A far better (and proven) way to improve homegrown talent would be the introduction of B teams - both Spain and Germany who seem to have the greatest talent at the moment have b teams - so that promising youngsters don't get lost in their development when steeping up from the U18s. There is a gap between that age group and the top flight football that reserve football doesn't sufficiently address. Unfortunately this has been shot down (and unless the PL clubs somehow use their financial muscle to force this I doubt it will be implemented)
Grass root coaching needs to be improved - the number of coaches with uefa licenses is shockingly less than those in Spain or Germany
Rather than forcing clubs to use average players, maybe the subs bench could be expanded and the extra spots given to U21 players - options instead of restrictions. In italy they have a 12 man bench - no reason why those 5 spots cant be given to young players. I dont think it's possible to increase the number of substitutions allowed (fifa rule or something) - but were it possible maybe allow two u21 substitutions in addition to the 3 'free' subs. only restriction I could conceivably see would apply to early stage cup matches where perhaps the club is required to play 2 or 3 youngsters.