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A £2.8bn government scheme aimed at helping to create three million apprenticeships risks 'being poor value for money', a new report has warned David Ramos/Getty

A £2.8bn ($3.5bm) UK government scheme aimed at helping to create three million apprenticeships risks "being poor value for money", a new report has warned. The study by the Institute for Fiscal Studies (IFS) found that most of the cash raised from a levy charged to large employers in England by 2020 will not be spent on apprenticeships.

Government spending is only expected to increase by £640m, said the report, suggesting that most of the revenue raised would be spent elsewhere.

But the Department of Education said it wants this programme, which begins in April 2017, to raise the UK's lagging productivity and tackle youth unemployment.

Its target of 600,000 new places every year would represent a 20% rise on the total number in the 2014/15.

But the think tank said the government has failed to make a convincing case for such a rapid expansion, adding that such a large increase puts at risk the quantity of the training given to young people.

The levy would apply to all employers with a wage bill of more than £3m, and is set to raise around £2.8bn by 2019-20. Employers would be able to reclaim their levy money but would only be able to spend it on government-approved apprenticeship

Report co-author Neil Amin-Smith said: "We desperately need an effective system for supporting training of young people in the UK. But the new apprenticeship levy, and associated targets, risk repeating the mistakes of recent decades by encouraging employers and training providers to relabel current activity and seek subsidy rather than seek the best training."

Rush to targets

The report added that the incentives to hire apprentices could have the unintended consequence of deterring employers from paying to train their own employees. It forecast the cost of the employers' levy could push down wages for young workers by 0.3% by 2021. The new scheme would be overseen by the recently formed Institute for Apprenticeships and backed by the government.

Neil Carberry of employer's group the CBI said: "Government must be ready to adapt the design of the system on advice from the Institute for Apprenticeships as we transition, addressing both unexpected issues and the longstanding concerns businesses have about the design of the new system."

Gordon Marsden, shadow skills minister, added: "The IFS are confirming what we have consistently warned the government about over the past 12 months. Rushing to hit a three-million target without sorting out the quality or increasing the proportion of apprenticeships under the age of 25 means they risk failing to deliver the long-term skills strategy we need."

A Department for Education spokesperson said: "The apprenticeship levy will boost our economic productivity, increase the country's skills base and give millions a step on the ladder of opportunity.

"Quality is at the heart of all of our apprenticeship reforms. We have introduced new apprenticeship standards which are developed by employers themselves and rigorously checked and taken steps to protect the term apprenticeship from misuse helping us to achieve our target of three million apprenticeship starts by 2020 and providing excellent value for money."