Cost hike for training older workers threatens to squeeze youth apprenticeships

Britain's largest employers are warning that a plan to charge them more for training older staff could undermine the government's efforts to fix the youth unemployment crisis. The friction centers on a proposal to restructure how apprenticeship funding works in England, a change that would make hiring and training workers over the age of 25 more expensive for companies.

The mechanism is simple. Under the current system, employers use a tax called the growth and skills levy to pay for training. The levy collects about £4 billion a year. The new proposal would allow firms to cover the full cost of an apprentice under 25 using these funds. For workers over 25, the state would only cover 75% of the cost. Employers would have to find the remaining 25% from their own pockets. This creates a direct financial incentive for companies to prioritize younger hires.

The idea was drafted before Wednesday's budget and first surfaced last week. It is expected to be part of the government's response to a review by Alan Milburn into why so many young people are out of work. Chancellor John Healey is expected to announce measures to widen opportunities for young people. The scale of the problem is large. About 1 million people aged 16 to 24 across the country are not in education, employment, or training, a category known as Neet.

Ministers argue the system needs rebalancing. Over 25s currently make up more than half of new apprenticeship enrolments. Andy Burnham has made youth jobs a central part of his agenda. He has outlined plans to reverse a 40% fall in youth apprenticeship starts that has occurred over the past decade. The government says it is right to focus on reversing this decline.

Business groups have pushed back against the logic of the surcharge. Robert Halfon, a former Conservative skills minister who is now the executive director of policy at Make UK, said the change will just mean opportunities are shifted around instead of creating new ones. He urged the chancellor to break the cycle of cutting and reallocating the apprenticeship budget. Instead, he wants the government to grow the number of places available.

John Foster of the CBI warned that skills cannot become a zero-sum game. He argued that training for adults opens up entry-level routes and helps people update their skills mid-career. This is particularly important as artificial intelligence reshapes the workplace. Ben Rowland of the Association of Employment and Learning Providers cautioned that changes that are too abrupt could endanger employer support for the system.

Kate Shoesmith of the British Chambers of Commerce said the best way to promote youth apprenticeships is to cut the wider costs of doing business. Firms have been pressing Healey for help with soaring costs linked to the war in the Middle East. They have also asked him not to add to the strain created by Labour's rise in employer national insurance contributions.

The debate arrives as Labour's youth skills strategy faces scrutiny. Just 160 young people enrolled on its foundation apprenticeship scheme in the first eight months. The ambition is 30,000 starts over the current parliament. Joe Dromey of the Fabian Society said the present system leans too heavily toward funding older, often highly qualified workers. He argued that tackling youth unemployment means making difficult choices about where public funding is spent.

A government spokesperson said ministers were right to focus on reversing the 40% decline in young apprenticeship starts. The spokesperson pointed to £3.3 billion allocated to deliver 50,000 additional apprenticeships. There is also a £2,000 hiring payment for small and medium-sized firms that take on a 16 to 24-year-old. The Milburn Review is due in the autumn, and the government said it will not pre-empt its findings.