Labour wants to create a new body to increase the skills of the British workforce and boost apprenticeships.

The party said the Government’s apprenticeship levy system is failing to provide enough skilled workers for 40,000 manufacturers, and pledged to change the way the levy is spent and to create a new body called Skills England.

Sir Keir Starmer is set to unveil his plan to change the apprenticeship levy to a “growth and skills levy” at a new Stem (science, technology, engineering, and mathematics) research centre in the South West alongside shadow business secretary Jonathan Reynolds.

The apprenticeship levy taxes employers 0.5% of their payroll each month if they have a wage bill of more than £3 million a year.

Businesses paying into the pot can use this money to fund apprenticeship training schemes.

Four leading trade bodies have called the apprenticeship system “broken” and have written to the Government asking for reform.

The British Retail Consortium (BRC), UKHospitality, techUK and the Recruitment & Employment Confederation said the system is restrictive as businesses cannot use the money to fund courses shorter than a year and £3.5 billion is being wasted as a result.

They said the Government should change the levy to a broader skills levy and allow businesses to fund courses that are shorter, more targeted and more tailored.

Without reforms to the levy, retail will not be able to turbo boost equipping its workforce for the future

Helen Dickinson, chief executive of the BRC, said: “Retailers want to invest more in training a higher-skilled, more productive and better paid workforce. They want to create more opportunities for people up and down the country. They want to contribute more to growth.

“But the broken apprenticeship system is a ball and chain around their efforts. Without reforms to the levy, retail will not be able to turbo boost equipping its workforce for the future.”

The Co-op is also calling for reform to the apprenticeship levy after conducting research which it said revealed that more than £600 million of levy funding has been returned to the Treasury in the last year which could have funded over 60,000 apprenticeships.

It wants the Government to increase the cap on funding that can be shared between businesses from 25% to 40%, and cited previous Co-op research which found that 64% of young people were more likely to choose an apprenticeship because of the rising cost of living.

The Government needs to better support businesses to make apprenticeships accessible to all and ensure that funding is used as effectively as possible

Co-op Group chief executive Shirine Khoury-Haq said: “Apprenticeships are one of the best tools available to promote social mobility, so business must play a central role in providing young people with an equal chance to gain the skills they need to fulfil their potential – particularly in the current economic climate.

“The apprenticeship levy goes some way to encouraging businesses to invest in their people, but the Government needs to better support businesses to make apprenticeships accessible to all and ensure that funding is used as effectively as possible.”

Other polling by Opinium for the London Progression Collaboration found that 78% of people believe they could not live on the apprenticeship minimum wage, which is £4.81 per hour and is set to rise to £5.28 per hour in April.

More than six in 10 people thought it was too low and that it should be replaced with the National Minimum Wage, with 71% of the over-65s in favour.