New analysis from the Institute of the Motor Industry (IMI) shows that recent government reforms promising free apprenticeships for small and medium-sized enterprises (SMEs) are unlikely to reduce costs in practice, with rising wages and National Insurance contributions cancelling out the intended savings.
Following the Autumn Budget, under-25 apprenticeships were made free for small businesses, removing the 5% co-investment previously required, a move estimated to save SMEs £650 – £800 per apprentice.
However, the apprentice minimum wage increase from £7.55 to £8.00 per hour, combined with earlier employer National Insurance hikes, means many small businesses will actually face higher overall costs to take on apprentices.
Nick Connor, CEO of the IMI, said: “The reforms are well-intentioned, and we welcome the government’s commitment to apprenticeships and fair pay.
“But when you factor in wages and NI contributions, SMEs are still paying more, not less. This risks creating further barriers to offering apprenticeships at a time when the sector needs them most.”
The IMI highlights the critical role SMEs play in the automotive talent pipeline.
Small workshops and garages provide essential entry-level opportunities, helping to reduce youth unemployment and prevent young people from becoming not in education, employment, or training (NEET).
Yet, with 30% fewer apprenticeship starts in automotive since 2018/19, an average loss of over 500 places per yea, financial and administrative hurdles remain a serious concern.
Nick added: “SMEs are the backbone of the sector. If the apprenticeship system remains costly and complex, the UK risks losing one of its most effective ways of attracting young people into skilled, sustainable careers.
“To truly boost take-up, the government must tackle wage affordability, not just training fees.”
IMI members surveyed expressed scepticism that the Autumn Budget reforms will make apprenticeships more affordable, highlighting that wage costs, rather than training contributions, are the main barrier.
Without addressing these fundamental costs, small businesses may continue to struggle to offer new opportunities, limiting the sector’s ability to develop the next generation of technicians.
We want to hear from you: How are rising wages and costs affecting your ability to take on apprentices? Share your experiences, challenges, or tips for making apprenticeships work in your garage below.
