Apprenticeship reform is squeezing the very SMEs it needs most

The government’s apprenticeship reforms are being positioned as a deliberate pivot towards young people and SMEs. But when we look more closely a different and worrying picture begins to emerge, and one subgroup risks being squeezed out altogether.

The point at which employers become levy-paying employers – having a pay bill greater than the £3 million threshold – has not changed since 2017. For the 24-25 financial year around 37,000 employers paid the levy, compared to just 22,000 when it was introduced. This is a direct result of fiscal drag and wage inflation, which has significantly extended the ‘tail’ of the levy. This has created a large group of “marginal levy payers” who by their very nature are the same SMEs that the government supposedly wants to enlist to help employ and train more young people. These are employers doing the right thing. They are engaged, investing in skills, and often recruiting young people into the labour market. Yet under the current reforms, they risk becoming the biggest losers.

Positively, there will be a new hire £2,000 cash incentive coming from October 2026 to support small businesses. Originally, the government headline announced this as an incentive for SMEs; however, the detail now says it’s an incentive for non-levy paying employers (typically SMEs). If you are a marginal levy-payer, then sorry, there actually won’t be an incentive for you. Strike one.