The professional body for HR said it believes that under current rules the levy will undermine the investment in skills and economic recovery needed following the coronavirus pandemic.
In its assessment of the levy’s performance since its launch four years ago, the CIPD found employer investment in training has declined, and far fewer apprenticeships have gone to young people.
Total apprenticeship starts have fallen too from 494,900 in 2016/17 to just 322,500 in 2019/20.
The body is now urging government for reforms in its upcoming budget on Wednesday (3 March) which would convert the current system into a more flexible training levy.
Speaking to HR magazine, Lizzie Crowley, senior skills adviser at the CIPD, said that young people are bearing the brunt of pandemic-related job losses and they need as many opportunities as possible to enter the jobs market.
“The levy is closing doors for them rather than opening any. Its rigid nature is preventing many employers from investing in skills that will help their business to flourish which, in turn, is undermining our economic recovery from the pandemic.”
Chancellor Rishi Sunak will announce £126m funding for 40,000 new traineeships, alongside new cash incentives for firms to take on apprentices and a new programme allowing apprentices to work for multiple employers within a sector rather than just one, according to reports from The Independent.
Crowley added: “More flexibility will allow employers to put staff through other, and often cheaper, forms of accredited training and skills development, which will free up more money to invest in apprenticeships for young people.
"Giving employers more flexibility would also mean they could fund employees to complete technical and vocational courses which are not apprenticeships but instead are much better suited to older, more experienced employees and the needs of their business."
Jane Hickie, chief executive of the Association of Employment and Learning Providers, said the extension of financial incentives until the end of September could be a game-changer but the focus could be in the wrong area.
She said: "The increase in the incentives should prove to be particularly attractive to smaller businesses who have traditionally offered apprenticeship opportunities to young people.
"But if we were in the Treasury’s shoes, we would have channelled the increased incentives to focus on 16-to-24 year olds only, because that is where the support is really needed and where the stimulus is required."
Coronavirus' impact on apprenticeships:
The CIPD’s assessment of the levy also found that the number of apprenticeships going to under 19s has fallen from 122,800 in 2016/17 to just 76,300 in 2019/20.
Overall employer investment in training, which the levy was supposed to boost, has declined with employer-funded 'off the job' training in England falling by £2.3 billion between 2017 and 2019.
CIPD chief executive Peter Cheese said that these findings demonstrate that the levy has achieved the opposite of its policy objectives.
He said: “Without reform it will act as handbrake on employer investment in skills, damaging firms’ ability to recover from the pandemic.”
“A more flexible skills levy would mean employers could use it to develop existing staff through other forms of accredited training and skills development which are cheaper and usually much more suitable for employees aged 25 and over, leaving more money to invest in apprenticeships for young people who most need them."