UK employers have lost £2bn over the past two years in apprenticeship levy funds that they have been unable to spend, exposing weaknesses in the government’s flagship training policy, according to analysis by a business group.

The Chartered Institute of Personnel and Development, which represents human resource professionals, said the official data showed that the government’s plans to bolster skills and training provision around the UK as part of its levelling-up agenda would be “fatally flawed” unless ministers recognised the need for wholesale reform of the levy.

Since 2017, apprenticeships in England have been funded through a levy equivalent to 0.5 per cent of salary costs for companies with an annual wage bill in excess of £3m. This money must be paid to the Treasury if it is not used within two years.

Business groups say the policy has failed on almost all measures: the number of people starting apprenticeships has plunged in the four years since its introduction; the proportion of apprenticeships going to young people has fallen sharply; and employers’ overall investment in training has also declined. The pandemic has exacerbated existing problems, with many employers either unwilling to make a long-term financial commitment or unable to train apprentices remotely.

The CIPD said that while many employers simply wrote off their levy funds as a tax, others found ways to spend the money on training that did not match the policy’s original intention. Between May 2019 and March 2021, funds totalling £1.999bn had expired unspent, according to the Department for Education figures obtained through freedom of information requests.

In the same two-year period, companies had doubled their spending on generic management apprenticeships, which are generally offered to existing, experienced staff who could have been trained in far more cost-effective, flexible ways.

Measures to bolster the UK’s adult education system will be central to the government’s new legislative agenda, with Tuesday’s Queen’s Speech set to include plans to transform the student loan system and give employers a statutory role in planning publicly funded training.

But ministers have so far proposed relatively minor changes to the way the apprenticeship levy works. Changes announced in the March Budget, including some new flexibility for employers to pass unused funds on to smaller companies in their supply chain, were simply “refining around the edges of a failed policy”, said Ben Willmott, the CIPD’s head of public policy.

Both the CIPD and other business groups argue for a more fundamental shift to a broader training levy, which employers could also use to fund other forms of accredited training for all employees.

Make UK, the manufacturers organisation, has also called attention to the record levels of unspent levy cash, saying the £1.04bn that had expired in the nine months since May 2020 was the highest yet for such a period.

It wants the government to let employers use up to a fifth of the unspent funds to support apprentices’ wages; a further fifth for capital expenditure; and to have an extra year in which to spend their levy pot before it expires.