The number of people starting apprenticeships has dropped by 31% compared to the last academic year, according to the Department for Education.
Between August 2017 and May 2018 there were 315,900 apprenticeship starts, compared to 457,200 the same time the year before.
Business groups including the British Chambers of Commerce (BCC) and the Institute of Directors (IoD) argue the apprenticeship levy creates barriers for employers who hire apprentices.
Employers with an annual pay bill of over £3 million are required to pay the apprenticeship levy, and receive an allowance of £15,000 to offset against it.
Smaller businesses that do not pay the levy are required to pay 10% of the cost of training an apprentice, with the government covering the remaining 90% up to a funding band maximum.
Jane Gratton, head of business skills at the BCC, said this "has significantly increased the cost of recruiting and training apprentices" for smaller firms, on top of other employment costs.
Edwin Morgan, director of policy at the IoD, said:
"Firms are not against the levy in principle. Government has been talking to businesses about where the obstacles are in the system, but it's now time for action to get the system back on track.
"When skills shortages are one the biggest issues facing the economy, there is no time to delay."
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