Employers should be allowed to use growth and skills levy funds to cover half the wages of foundation apprentices, the Fabian Society has said, after just 160 young people started the new programme in its first nine months. The Labour-affiliated think tank also wants 5 per cent of the annual revenue raised through the levy to be devolved to mayors to develop local pre-apprenticeship programmes, and for the government to introduce “VCSEs” as a vocational equivalent to GCSEs for 14- to 16-year-olds. The recommendations were set out in a new report – ‘Pathways to Apprenticeships’ – which warned ministers risk missing their ambition to tackle youth unemployment unless they fix the “fragmented and opaque” route from education into an apprenticeship. Apprenticeship starts among under-25s in England fell by 40 per cent, from 286,000 in 2014-15 to 172,000 in 2024-25, which represents the “largest decline among advanced economies”, according to the report. Meanwhile, almost one million young people across the UK are not in education, employment and training (NEET). The report comes as former Labour cabinet minister Alan Milburn nears the conclusion of his national review into young NEETs. Milburn has suggested his final report could recommend a “root and branch” review of the apprenticeship levy, now known as the growth and skills levy. The Fabian Society said strengthening pre-apprenticeship pathways is key to efforts to reverse the decline in young people entering apprenticeships. Redesign foundation apprenticeships Foundation apprenticeships were introduced by ministers last year as entry-level paid jobs with structured training at level 2, lasting at least eight months. They are currently available in construction, digital, social care, and engineering and manufacturing, and are intended to help young people progress into a full apprenticeship, skilled employment or further study. But the scheme has got off to a slow start. The government set an ambition for up to 30,000 foundation apprenticeship starts by July 2029, but just 160 young people started one between the scheme’s launch in August 2025 and April 2026. The Fabian Society said the low take-up is partly due to limited employer demand, as well as a lack of interest from awarding organisations and training providers because of low volumes and relatively low funding bands. It called for foundation apprenticeships to be offered at level 1 as well as level 2, expanded into all sectors and given higher funding bands to attract more providers. Employers can currently receive incentives of up to £2,000 for hiring a young person onto a foundation apprenticeship, intended to cover costs including wages. A third of the payment is conditional on the apprentice progressing to a full apprenticeship within 90 days. The growth and skills levy can be used to pay for the training of foundation apprentices, but not their wages. The Fabian Society wants this rule changed so levy funds can cover half of a foundation apprentice’s wages. It estimated this would save employers around £4,700 per young person and make them more likely to participate in the scheme. The think tank estimated that its proposed reforms could eventually generate around 130,000 foundation apprenticeship starts over the next parliament. The total cost of the foundation apprenticeships redesign, including both training and assessment and the employer wage subsidy, would be £236 million annually and would be covered by increasing and expanding the growth and skills levy to more employers. The report repeated the think tank’s previous call for the levy rate to rise from 0.5 per cent to 0.7 per cent of payroll, while lowering the salary bill threshold at which employers become liable to pay it from £3 million to £1 million. It estimated the changes would raise an additional £2.5 billion by 2029. Give mayors levy funds to create bespoke pre-apprenticeships Ministers recently set a precedent by handing £140 million of the apprenticeship budget to mayors to fund an apprentice brokerage pilot, which appears to be the first time apprenticeship levy funds have been used to fund initiatives beyond training and incentives. The pilot will run in eight areas from autumn 2026 and is focused on supporting young people aged 16 to 24 who are, or are at risk of, becoming NEET. The Fabian Society said the government should go further and task mayoral strategic authorities and other local areas with creating bespoke pre-apprenticeship training programmes. Courses should be shorter than foundation apprenticeships – from eight to 16 weeks – and would be pre-employment provision linked to a guaranteed apprenticeship opportunity at a local employer, rather than being an immediate form of employment. The Department for Work and Pensions should also allow young people who are on universal credit to continue claiming for the duration of the pre-apprenticeship, while mayoral strategic authorities should consider providing a stipend to NEET young people who are not claiming benefits. These local pre-apprenticeship training programmes would be funded through devolving 5 per cent of the expanded growth and skills levy to create a new regional apprenticeship fund worth £311 million annually by 2029-30. Jess Strenk, head of public affairs and stakeholder engagement at Youth Futures Foundation, said international evidence indicates that apprenticeships are particularly effective in getting young people into good work. “Countries with higher youth labour market participation rates have much stronger links between education systems and employers, with opportunities for young people to take good vocational pathways earlier,” she added. VCSEs to sit alongside GCSEs New prime minister Andy Burnham unveiled plans over the summer to create new technical education pathways for 14 to 16-year-olds from September 2028. Education secretary Lucy Powell has already said that new or reformed national GCSE-level qualifications may be needed as part of Burnham’s plans. The Fabian Society said the government should develop a new qualification called VCSEs – to provide a vocational pathway alongside GCSEs. The qualifications would provide a “broad introduction to a chosen occupational area, providing practical industry-specific knowledge, work-related skills, and a variety of interactions with employers”. VCSEs should be available at level 1 or level 2, with students required to take them alongside a core of GCSEs, the report said. The courses would be based on occupational pathways, enabling young people who want to pursue the vocational route to move directly into an apprenticeship or onto V Levels or a T Level. Fabian Society highlighted that VCSEs – or the Vocational Certificate of Secondary Education – are being introduced from September next year in Wales. Joe Dromey, report author and general secretary of the Fabian Society, said: “The prime minister is right to make getting more young people into skilled work a priority. But setting the ambition is not enough if the route into an apprenticeship does not work. “Our findings show just how confusing parts of the current system have become. The government’s commitment to reform technical routes from 14 are an important step, but ministers now need to make sure these routes actually lead somewhere. “That means fixing foundation apprenticeships, giving mayors the tools to build local pathways into real opportunities, and making it easier for employers to take on young people.” The government was approached for comment.