A NEW apprenticeship levy on company payrolls will raise £3 billion a year and fund three million apprenticeships, the chancellor has announced.

The new charge will be imposed from April 2017 and help ensure that big business shoulders the cost of training workers, George Osborne said.

But business groups have described the levy as a new "payroll tax".

The Institute of Directors said it would be a big cost for many companies, including medium-sized firms.

The CBI said it was a significant extra tax for business that would hit many smaller companies.

Only businesses with a wage bill of more than £3 million will pay the levy, which the government said would exempt 98 per cent of employers.

EEF, the manufacturers’ body, said: “What really matters is creating high quality, well trained apprentices who can look forward to successful careers in industry.

"This cannot be a simple numbers game where businesses are clobbered to pay for apprenticeships. The Government’s approach to this requires a lot more sophistication than we’ve seen so far.”

Carolyn Fairbairn, CBI director general, said: “Business recognises there are tough choices to be made in balancing the books, but many are reaching a tipping point, where the cumulative burden of the living wage, apprenticeship levy and business rates risk hurting competitiveness.”