The number of people starting new apprenticeships under the government's scheme has fallen by 26%, the National Audit Office has said.Before the government introduced the apprenticeship levy in 2017, which taxes larger companies and allows them to claim it back in the form of funding for apprenticeships, there were 509,400 new apprenticeships. But in 2018, there were just 375,800 new starts.
The government reformed the apprenticeships system in a bid to create three million new starters by 2020. The NAO said it is now "very unlikely" the government will reach that target.
The government responded by saying that apprenticeships are growing year-on-year, while Apprenticeship and Skills Minister Anne Milton said the government would continue to work with employers to develop apprenticeship programmes.
The NAO's report said smaller businesses are giving up on the scheme, while larger companies are not claiming back the money they have paid through the apprenticeship levy, meaning a £2 billion pot of funding has been unspent.
Head of the NAO, Amyas Morse, said: "Despite making changes to the apprenticeships programme, the department has not enticed employers to use available funds or encouraged enough potential recruits to start an apprenticeship.
"It has much more to do to meet its ambitions. If the department is serious about boosting the country's productivity, it needs to set out clearly whether its efforts are on track to meet that aim."
The CBI's chief UK policy director, Matthew Fell, said: "Today's report confirms what employers already know - that the apprenticeship levy is not yet working as intended and is holding back the government's welcome efforts to modernise the skills system.
"Companies are committed to apprenticeships, so what's needed now is a second wave of reform."
Earlier this week, research conducted by CIPD course providers DPG found that nearly two-thirds of business owners have never heard of the apprenticeship levy.
Over a quarter of businesses (27%) said they don't see the benefit of offering apprenticeships, while a further 17% don't see the point of them at all.