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Britain’s largest employers have told the government that forcing businesses to pay more to train older workers risks damaging its goal to tackle the youth jobs crisis.

The Guardian understands ministers plan to overhaul Labour’s apprenticeship funding scheme to increase the cost of training a worker over the age of 25 in England by 25%, to encourage firms to train young people instead.

Drawn up before Wednesday’s budget, the proposal, which was first reported last week, is expected to form part of the government response to Alan Milburn’s review into why so many young people are unemployed.

The chancellor, John Healey, is widely tipped to announce measures to bolster opportunities for young people to help the 1 million 16- to 24-year-olds not in education, employment or training (Neet) across the country.

However, business leaders urged the government to reconsider the plan to make training older workers more expensive.

“It will just mean opportunities are shifted around instead of creating new ones,” said Robert Halfon, a former Conservative skills minister who is now the executive director of policy at the manufacturing lobby group Make UK.

“We agree that getting young people back into employment and training is a moral and economic imperative. But making it more expensive for employers to train older workers isn’t the answer,” he added.

Calling on Healey to “break the cycle” of cutting and reallocating the apprenticeship budget in England, Halfon said the system was already struggling to deliver what businesses and young people need.

“If the government is serious about getting young people into good jobs and giving industry the skills it needs, it should use that opportunity to grow the number of apprenticeships available rather than restrict training elsewhere.”

Andy Burnham has placed youth jobs at the heart of his agenda, including sweeping changes to retool technical education and plans to reverse a 40% drop in youth apprenticeship starts over the past decade.

With over-25s accounting for more than half of new apprenticeship enrolments, ministers have been clear they want to rebalance the system towards supporting more younger people.

Under the latest proposal, which is yet to be finalised, employers would be able to fund the full cost of an apprentice under the age of 25 using the money they contribute to the growth and skills levy – the £4bn-a-year tax used to fund the national apprenticeship system.

However, for an older worker, they would face a “co-investment rule” whereby levy funds would cover 75% of the costs. The rest would need to be covered separately.

Employers have for years been told they were free to spend their levy funds on training as they saw fit.

John Foster, the chief policy and campaigns officer at the CBI lobby group, said: “We can’t make skills a zero-sum game.

“While it is right to focus on supporting young people who are Neet into work, adult training also has a vital role to play in opening up entry-level opportunities and helping people adapt and update their skills mid-career, particularly as AI reshapes the workplace.”

Ben Rowland, the chief executive of the Association of Employment and Learning Providers, said: “The key to any further changes to the apprenticeship system is to bring employers on the journey. Anything that is too abrupt or too quick significantly endangers that.”

Business leaders have been pressing Healey to use Wednesday’s budget to provide support with soaring costs amid the war in the Middle East, and have urged the chancellor not to add to the pressure on firms after Labour’s increase in employer national insurance contributions.

Kate Shoesmith, the director of policy and insights at the British Chambers of Commerce, said: “At a time when businesses are under pressure to improve productivity and drive growth, employers need greater flexibility and support to invest in skills at every stage of a person’s career.

“The best way to encourage more youth apprenticeships is to make it easier and more affordable for firms to take on young people by reducing the wider costs of doing business, rather than creating new barriers to training.”

Labour has been told its youth skills strategy risks failure without reform, after just 160 young people were enrolled into its foundation apprenticeship scheme in the first eight months. Ministers have an ambition for 30,000 starts over the current parliament.

Joe Dromey, the general secretary of the Fabian Society, said that while flexibility was important for business, the current system was skewed too heavily towards funding older, often already highly qualified workers.

“These will not be easy decisions, and some will be unpopular with businesses. But tackling youth unemployment means making difficult choices about where public funding is spent.”

A government spokesperson said: “It’s right that we focus on reversing the 40% decline in the number of young people starting an apprenticeship and give them the skills they need to succeed.

“That’s why we have reformed the system backed by £3.3bn to deliver 50,000 additional apprenticeships for young people and support employers with a new hiring payment of £2,000 for SMEs who take on a 16- to 24-year-old apprentice.

“The Milburn Review is due in the autumn. We will not pre-empt its findings.”