Chancellor to Impose 25% Surcharge on Training Workers Over 25

Employers will face a 25% cost increase when training workers aged 25 and older under a draft proposal to rework England's apprenticeship funding system. The plan, which has not yet been finalized, aims to shift financial incentives toward hiring younger staff. It is expected to form part of the government's response to a recent review into youth unemployment.

The proposal emerged before the budget announcement on Wednesday and was first reported in the media last week. It centers on the growth and skills levy, a tax generating £4 billion annually that funds the national apprenticeship system. Currently, employers can use their levy contributions to cover the full cost of training an apprentice under 25. Under the new rule, levy funds would only cover 75% of the cost for workers over 25, leaving the remaining quarter to be funded separately by the firm.

Chancellor John Healey is expected to announce measures to widen opportunities for young people, given that approximately 1 million people aged 16 to 24 in the country are not in education, employment, or training. Andy Burnham, the vice-chancellor for the North West, has placed youth employment at the center of his agenda. His office has noted a 40% decline in youth apprenticeship starts over the past decade and aims to reverse that trend. The government states that workers over 25 currently account for more than half of new apprenticeship enrolments, which it views as a misallocation of resources intended for younger workers.

Business organizations reacted swiftly to the draft rules. Robert Halfon, a former Conservative skills minister and executive director of policy at Make UK, argued that the change would merely shift opportunities around without creating new ones. He urged the chancellor to break the cycle of reallocating the apprenticeship budget and instead increase the total number of places. John Foster of the CBI warned against making skills a zero-sum game, noting that adult training helps people update their skills mid-career as AI reshapes the workplace.

Ben Rowland of the Association of Employment and Learning Providers cautioned that abrupt changes could endanger employer support. Kate Shoesmith of the British Chambers of Commerce suggested that the best way to promote youth apprenticeships is to cut the wider costs of doing business. Firms are currently pressing Healey for relief from soaring costs linked to the Middle East war and the recent increase in employer national insurance contributions.

The debate occurs against a backdrop of criticism regarding Labour's youth skills strategy. Only 160 young people enrolled in the foundation apprenticeship scheme during the first eight months, far below the ambition of 30,000 starts over the current parliament. Joe Dromey of the Fabian Society stated that the system currently favors funding older, often highly qualified workers. He argued that tackling youth unemployment requires difficult choices about the allocation of public funding.

A government spokesperson defended the focus on reversing the 40% decline in young apprenticeship starts. The spokesperson cited £3.3 billion in funding to deliver 50,000 additional apprenticeships and a £2,000 hiring payment for small and medium-sized firms taking on 16 to 24-year-olds. The spokesperson added that the Milburn Review is due in the autumn and that the government will not pre-empt its findings.

The final structure of the funding change will be detailed in the government's response to the review. The proposed co-investment rule would apply specifically to the portion of training costs not covered by the levy for workers over the age threshold. Employers will need to determine how they source the additional 25% in their annual budgeting for workforce development.