Large employers will be “taxed” to fund the government’s targets of 3 million apprenticeships, it was announced today.

In the first solely Conservative Budget since 1996, chancellor George Osborne said a “radical, long overdue” new approach to apprenticeship funding was needed.

He said that too many large companies had “left training to others”, and announced that a levy would be introduced for large UK employers to fund the new apprenticeships.

But the move has already come in for strong criticism from the CBI, which has described the policy as a “blunt tool”.

John Cridland, director-general of the business lobby organisation, said: “Firms want to play their part in training up more apprentices but an apprentice levy is a blunt tool. A volunteer army is always better than conscription but the CBI will work with the government to make the best effect of this measure.”

The Budget document says: “This approach will reverse the long-term trend of employer underinvestment in training, which has seen the number of employees who attend a training course away from the workplace fall from 141,000 in 1995 to 18,000 in 2014.”

It adds that the levy will support all post-16 apprenticeships in England, and will provide funding that each employer can use to meet their individual needs. The funding will be directly controlled by employers via the digital apprenticeships voucher, and firms that are committed to training will be able to get back more than they put in, it says.

A spokesman for the Department for Business, Innovation and Skills said the levy would raise money to fund increases in apprenticeship numbers and quality, and will be entirely funded by employers rather than the government.

He said levy-funded training was widespread across the world, with the World Bank having identified 62 separate levy regimes in countries such as the Netherlands, Denmark and South Korea.

“Over time the levy will normalise investment in apprenticeship training by incentivising companies to train apprentices rather than recruit staff from competitors or overseas,” the spokesman added. “The scheme will therefore have greater reward for those companies who invest significantly in training their workforce.”

Skills minister Nick Boles said: “Today’s apprentices are tomorrow’s business leaders so it is right we invest in securing their futures. By developing the skills of young people, businesses can boost their productivity, employees can harness their talent and we can reach our potential as world beaters.”

There will be formal engagement with business on the implementation of the levy and further details will be set out at the spending review in the autumn.

The announcement comes just days after Professor Baroness Alison Wolf put forward the case for a levy in a piece for the Social Market Foundation.

She wrote that a levy would “provide more money, allow spending decisions to be controlled by employers, and ensure that all employers are directly involved with the apprenticeship system, even if they do not currently employ an apprentice.”

However, she said that all employers should pay, whereas the chancellor said only large UK forms would be affected, although he did not give further details.

Lady Wolf told TES she was “extremely pleased” with the announcement.

She said: “Firstly I think it’s entirely justified as a way of creating the institutions that apprenticeships need. That’s why it’s common in countries with good apprenticeships systems.

“Secondly I couldn’t see where the money was coming from otherwise. What’s needed is a hypothecated tax instead of the patchy method of getting bits of money from here and there that we have now. That’s no way to create a stable long-term apprenticeships system.”

Although Lady Wolf had suggested all employers should pay a levy, she said the fact the chancellor specified only large employers would be involved was not a major concern.

“The detail can be worked out later; it’s the principal that’s important,” she said. “I’m delighted.”

A similar idea was put forward by the Association of Colleges in a briefing paper last month.

The AoC suggested a national statutory training levy on employers was a “rational response” to skills shortages, spending cuts and the failure of other efforts to engage employers.

In response to the Budget, AoC chief executive Martin Doel said the proposed levy was a “brave decision and an important step in ensuring the quality of apprenticeships is maintained at the same time as the quantity is increased”.

“It is right that employers make a contribution to the costs of training the national workforce as they benefit from apprenticeships in terms of increased productivity among their employees and from access to a more skilled labour market,” he added. “Levies are one way in which this can be achieved and they are already in use in many other countries. 

“It will be important however that any levy system is not unduly bureaucratic and we believe a universal payroll charge is the best approach.

“The key announcement for colleges in today’s budget is the plan to implement spending cuts over a longer period but a slower rate than indicated in the March budget. We will continue to emphasise the need for the government to invest in education and skills.”

The levy proposals were also welcomed by Mary Bousted, general secretary of the ATL union.

“George Osborne is right in his assessment that skills need a radical overhaul, so an apprenticeship levy on large employers is a good first step,” Dr Bousted said. “One third of employers offered their workers no training, of any sort, last year so radical measures are needed. However, the levy needs to ensure apprenticeships are of high quality, not just increase the quantity.”

The announcement was also welcomed by the City & Guilds Group, whose chief executive Chris Jones said it would also help improve apprenticeship quality.

However, he said it was important people were supported to “move up the ladder” at every stage of their careers.

“Today we are disappointed that the chancellor was silent on the need to boost provision for over-19s in areas such as vocational qualifications and employability support,” he said. “We also need alternatives to a purely academic curriculum at 14 or 15 - again, something that wasn’t covered.”

David Hughes, chief executive of adult education body Niace, said it would be a “great move” if it led to increased employer investment in skills and more employers taking on apprentices.

But he said apprenticeships were not enough to fill skills gaps and drive productivity, and that people already in work also needed training.

In today’s Budget, Mr Osborne also revealed more details of the “youth obligation”, which will see 18- to 21-year-olds who do not “earn or learn” lose out on benefits.

Within six months of submitting a benefits claim, they will be obliged to “apply for an apprenticeship or traineeship, gain work-based skills, or go on a mandatory work placement to give them the skills they need to move into sustainable employment,” according to the Treasury.