Alan Milburn’s latest round of national newspaper interviews has put England’s apprenticeship system in the firing line.
The former Labour cabinet minister, who is close to concluding his review into young people who are not in education, employment or training (NEET), has suggested that his final report could recommend subjecting the £4 billion-a-year levy to a “root and branch” review.
The levy was supposed to expand apprenticeships, particularly among young people, while improving quality. Milburn argues that it has succeeded on the latter but failed on the former.
Young apprentice numbers have fallen sharply over the past decade, while employers have been let loose to increasingly use their levy pot to train existing staff, many of them adults.
The Financial Times said Milburn has suggested going as far as recommending scrapping the levy, after he told the outlet, “it’s just not working” for employers or young people.
Speaking on The Times’ The Business podcast, he outlined how the levy was effectively a tax that government had irresponsibly left employers to do what they like with. He argued that the apprenticeship system needed to be brought “back to its core purpose” of helping young people into jobs.
To be clear, Milburn has not been quoted directly saying he plans to recommend the abolition of the apprenticeship levy.
Such a radical proposal appears unlikely considering it would essentially constitute a large tax cut for big employers and leave the government with a significant financial hole to fill.
But he is clearly preparing to recommend significant changes to the apprenticeship system.
‘A tax, not a levy’
A more likely outcome is Milburn will urge the government to take a much more direct approach to how employers can use apprenticeship funding.
Simon Field, a skills policy expert who previously led the OECD’s work on technical education systems, said the levy was initially conceived like skills levies in other countries where employers’ contributions are collected into a ring-fenced training budget.
But it was implemented as an employment tax, with a separately determined apprenticeship budget.
The system was made to look like a levy by giving large employers notional digital “pots” from which they could pay for apprenticeships. But most non-levy-paying employers contribute little or nothing directly towards apprenticeship funding.
Field said the levy pot arrangement has become an “embarrassingly diminutive fig-leaf disguising the reality of the levy as a tax”.
He called for the government to accept that the levy is a tax and to stop giving employers the expectation that they should determine how the money is spent.
Milburn’s interim NEET report showed how the levy had been disproportionately used to fund higher-level apprenticeships for older, existing employees, with the number of higher-level apprenticeship starts increasing from just over 2,000 in 2010-11 to more than 140,000 in 2024-25.
Apprenticeship starts for under-19s fell from around 130,000 in 2014-15 to around 75,000 in 2024-25, while the share of starts going to those under 25 has fallen from over 57 per cent to just under 49 per cent.
The levy also coincides with a sharp decline in apprenticeship starts at small and medium-sized enterprises.
“The entry-level provision that matters most for young people outside work has been hollowed out,” Milburn’s interim report said.
Experts argue that this is partly a consequence of giving levy-paying employers too much freedom over how apprenticeship funding is spent.
Milburn told The Times: “What employers have done, quite rationally, individually, but irrationally when it adds up collectively, is they’ve used that a lot for adult in-work training.”
Existing older employees are typically put on higher-level apprenticeships which are more expensive to deliver than entry-level courses. This has led to the apprenticeship budget released by the Treasury being fully spent in recent years.
‘Tougher choices’
Milburn told The Times that “part of the problem” with the apprenticeship system is that “there hasn’t been government direction”.
“They’ve imposed a tax, and they’ve said guys, over to you,” he explained. “If you look at other comparable countries, public policy plays quite a big part in saying actually, this is what we want this levy to be used for, and here we’ve absented ourselves from that. I think that has been a huge mistake with massive consequences.”
The current government appears to have recognised this and begun to act.
Since Labour came into power in 2024, ministers have restricted level 7 apprenticeships to people aged 21 and below, and have defunded 16 standards – including popular management courses – that are mostly taken by older workers.
Meanwhile, Labour transformed what was the apprenticeship levy into the growth and skills levy, allowing employers to use funding for short apprenticeship unit courses and foundation apprenticeships aimed at preparing young people for full apprenticeships.
Apprenticeship training for eligible under-25s is now fully funded, and hiring payments worth up to £8,000 are on offer for employers taking on young apprentices.
But could the government realistically move to a more prescriptive apprenticeship system, telling employers more directly what they can spend their levy contributions on?
Stephen Evans, CEO of Learning and Work Institute, said ministers will need to make “tougher choices”.
“Funding apprenticeships via the levy could have meant more skin in the game, and hence greater engagement, from large employers,” he said. “But combined with an expansion of apprenticeships to higher levels and older age groups, it’s meant sharp falls in apprenticeships for young people.”
Employers now see the money as “theirs”, Evans said, making it harder for the government to change the rules controlling its use.
“Real change – to the type of apprentices, the number of apprentices, or employers’ training investment behaviour – will involve some tougher choices,” he added.
Possible levers
It is worth remembering that skills minister Jacqui Smith refused to rule out further restrictions that shift apprenticeship funding towards young people, warning it is “not the end of the road” for reform during the Association of Employment and Learning Providers’ conference in June.
AELP chief executive Ben Rowland said the levy had brought “many more employers into the apprenticeship system, including businesses that previously offered few or no apprenticeships”, and created a valuable sense of ownership.
Rather than dismantling the levy, he suggested using funding bands and incentives to create more opportunities for younger apprentices.
Government could co-fund provision for older adults, increase funding bands for standards that attract younger apprentices, or develop apprenticeship units to equip junior managers to support young people who are NEET.
Field believes the government should go further and rule that the apprenticeships budget should only be available to fund apprenticeships for young people and at levels 2 and 3.
Back of the NEET
Milburn has looked overseas for inspiration on how to reduce the UK’s NEET rate, which stands at around one million young people.
He spent last week visiting the Netherlands – which boasts the lowest NEET rate across Europe – with former England football manager Gareth Southgate.
Milburn described the country as “a living example of how work beats welfare”.
“What they’ve done is they’ve got a mentality about work, and they have got institutions that make sure that work is the primary objective,” he said.
But a Resolution Foundation report published in April found that the UK’s high NEET rate was more closely associated with lower education participation than with health or job availability.
In 2024, 43 per cent of UK 18-to-24-year-olds were in education, compared with an OECD average of 53 per cent.
Among 23 OECD countries with lower NEET rates than the UK, all but two achieved this largely through having more young people in education or combining education and work.
The UK also has a weaker vocational education offer. In 2024, 22 per cent of 18 to 21-year-olds were on vocational courses, compared with 35 per cent across the Netherlands, Denmark and Germany.
The Resolution Foundation concluded that keeping young people in education for longer is more important for tackling NEET rates than simply creating more work.
It called for better enforcement of the mandatory participation age for 16 and 17-year-olds, improved vocational pathways and at least two-thirds of growth and skills levy funding to be restricted to under-25s.
Field said the key difference between apprenticeships in the UK and other countries is not necessarily that governments exercise greater control over employers, like Milburn suggested.
Instead, youth apprenticeships are built into the design of vocational education systems.
In many continental European countries, off-the-job training for apprentices is a “non-issue” because it is integrated and funded through vocational upper-secondary schools.
“This funding is as automatic and uncontroversial as funding the equivalent of A Levels,” Field said. “None of this is very applicable to older incumbent workers.”
Alison Wolf, a former Number 10 skills policy adviser, also disputed the idea that governments are more involved in successful European apprenticeship systems.
England’s system is already “highly centralised”, she said. The difference is that government involvement elsewhere is often local, or systems are steered by institutions such as chambers of commerce.
Wolf has previously proposed ring-fencing part of the levy for 16 to 21-year-olds, and reducing the proportion of training costs covered by government for apprentices aged 25 and over.
She has also argued for local administration of apprenticeships, with funding distributed to mayoral combined authorities to respond to local skills needs.
Release the top slice
Other suggestions to increase funding for youth apprenticeships include matching the apprenticeship budget to levy receipts and making more employers pay into the system.
Since 2017, employers with a payroll bill of over £3 million pay 0.5 per cent of their total annual salary bill into a digital account. Unspent funding from levy-payers is used to subsidise apprenticeship training costs for small and medium-sized employers.
Employer levy contributions are forecast to generate £4.5 billion in 2026-27. Of this, around £500 million will be allocated to the devolved nations. Combined with England’s £3.3 billion apprenticeship budget, this leaves an estimated £700 million kept by the Treasury.
Levy contributions are expected to rise to £4.7 billion in 2027-28 and then to £4.8 billion in 2028-29. If the DWP’s apprenticeship spending estimates are accurate, the Treasury top-slice will increase to £1 billion and £1.14 billion respectively.
The Fabian Society has called for the Treasury to stop retaining its near-20 per cent share of apprenticeship levy income. It found that £2.3 billion raised through the levy was retained by the Treasury between 2017-18 and 2024-25.
It also proposed lowering the levy threshold from companies with payrolls above £3 million to £1 million, while increasing the contribution rate for large employers from 0.5 to 0.7 per cent.
Hannah Larsen, policy officer at the British Chambers of Commerce, said employers “are clear” that the growth and skills levy isn’t working, but warned that the skills system is “already too complex; adding further conditions and restrictions risks creating more barriers rather than more opportunities”.
She added: “Almost £1 billion a year is contributed by businesses to the levy which is not spent on apprenticeships. If we want to turbocharge our skills system, then the levy’s full value must go on training.”
A Department for Work and Pensions spokesperson said the government is “already pivoting the apprenticeship system towards the next generation”, and it will respond to Milburn’s full report when it is published later this year.