Plan to make firms pay more to train older workers than youth apprentices in England

Employers in England are to be forced to pay more to train an older worker than a youth apprentice under plans being drawn up by the government to tackle the youth jobs crisis.

The Guardian understands ministers plan to overhaul Labour’s apprenticeship funding scheme to increase the cost of training by 25% for a worker over the age of 25 in order to encourage businesses to train young people instead.

Aiming to reverse a 40% drop in youth apprenticeship starts over the past decade, the proposal is being developed as part of the government response to Alan Milburn’s review into why so many young people are out of work.

With his final report delayed until after the budget, the former Labour cabinet minister this week signalled that boosting access to apprenticeships would be critical for fixing the first rungs of the career ladder for young people.

The chancellor, John Healey, is preparing to include measures to tackle soaring youth unemployment in his highly anticipated tax and spending statement to the Commons in less than a fortnight’s time.

After a rise in the number of young people not in education, employment or training to almost 1 million, Andy Burnham has made supporting youth job opportunities central to his agenda for power, including sweeping changes to retool technical education and apprenticeships.

Ministers have been clear they want to rebalance the apprenticeship system back towards younger people. More than half of new starts are now for over-25s and the number of under-19s enrolling has almost halved in a decade.

Under the changes being planned to the growth and skills levy – the £4bn a year tax used to fund the national apprenticeship system – employers in England will face a new “co-investment” rule restricting the funding they can access.

Aiming to tip the balance to incentivise youth apprenticeships, the change is controversial because employers have for years been told by successive governments they were free to spend their levy funds on training as they saw fit.

“Employers are not going to like it,” said one senior policy expert close to the government. “They were told ‘it’s your money, you get to decide’. But the system is not working at the moment.”

Earlier this year Labour revamped the apprenticeship levy introduced by the Conservatives in 2017, with changes handing more flexibility to employers over the types of training the system can be used for – including new foundation apprenticeships and shorter courses.

Under the levy, large employers (those with yearly wage costs totalling more than £3m) must pay 0.5% of their total annual pay bill into a dedicated digital pot that they can draw from to fund training and assessment costs.

Following the proposed change, money from the pot would still be available to cover eligible training costs for apprentices aged 16 to 24. However, for older apprentices, the funds would cover only 75% of the cost and employers would need to pay for the remainder. It is believed the measure is under consideration for a phased launch from the start of the next academic year, in September 2027.

Labour has been warned that its skills strategy to tackle youth unemployment risks failure without a change in course. Official figures show its flagship foundation apprenticeship scheme has enrolled just 160 young people in the first eight months, against an ambition for 30,000 starts over the course of the parliament.

This month the Fabian Society thinktank called on ministers to increase the rate of the growth and skills levy to 0.7% to raise an additional £2.5bn, which could be used to target more funding towards youth apprenticeships.

However, it is understood that ministers are wary of heaping additional costs on businesses after the backlash suffered over employer national insurance contributions and as firms press for budget support to help them hire more young people.

Alongside tight constraints on the public finances, this has shifted the focus to restricting levy funds as a way to support young people without further adding to the costs for the public purse.

A Department for Work and Pensions spokesperson said: “We remain determined to address the 40% decline in apprenticeship starts among young people and give them the skills they need to succeed.

“We are already pivoting the system towards the next generation, including by creating 50,000 additional apprenticeships for young people, and introducing a new hiring payment of £2,000 for SMEs who take on a 16-24-year-old apprentice.

“The Milburn review is due in the autumn. We will not pre-empt its findings.”