The levy, announced in the post-election emergency Budget and due to come into force in April, is also intended to help create three million more apprentices by 2020.

A £15,000 allowance means that only companies with wage bills of £3m per year or more will pay the levy. The government said that this amounts to less than 2% of employers.

Delivering his Autumn Statement in the House of Commons this afternoon, following the first Spending Review since 2013, Osborne said companies would “get out more than they put in”.

“It’s a huge reform to raise the skills of the nation and address one of the enduring weaknesses of the British economy,” he said.

The government also plans to create a body to set standards to ensure apprentices are gaining the skills that businesses need.

Around 600,000 small businesses will continue to receive business rate relief scheme for another year.

However Osborne is also giving local authorities and elected mayors power to set their own business rates and keep 100% of the receipts to spend on local services - part of what he calls the “devolution revolution”.

The Department of Business, Innovation and Skills (BIS) will see a 17% cut to its funding. Grants distributed through Innovate UK will be cut and replaced with loans.

However he decided to avoid £4.4bn in planned tax credit cuts altogether, following months of campaigning and a defeat in the House of Lords.

Osborne promised to "build one of the most digitally advanced tax administrations in the world" by giving every small business and each person a digital tax account by 2020 to manage their tax affairs online.

“In the digital age, we don’t need taxpayers to pay for paper processing, or 170 separate tax offices around the country,” he said.

He also announced plans to reduce car insurance costs. Osborne said he expected the industry would save £1bn by the government ending some claims with consumers saving £40 to £50 on average.

Also on transport the chancellor announced extra money for new road and rail projects, including the electrification of TransPennine, Midland Mainline and Great Western and £11bn for London.

Parents may also benefit from an increase in the free childcare allowance to 30 hours, or three and four-year-olds, which will have a knock-on effect for employers. The childcare is only available to parents working more than 16 hours a week and with incomes of less than £100,000.

Osborne said: “Five years ago, when I presented our first Spending Review, our economy was in crisis and there was no money left.

"Today, as we present this Spending Review, our job is to rebuild Britain. Build our finances. Build our defences. Build our society so that Britain becomes the most prosperous and secure of all the major nations of the world.”

He said that since 2010, no economy in the G7 had grown faster than Britain and said predicted growth had been revised up to grow by 2.4% this and next year, 2.5% in 2017, 2.4% in 2018 and 2.3% in 2019 and 2020.

He added that borrowing would fall to £24.8bn in 2017-18, to £4.6bn in 2018-19 and in 2019-20 the economy would be running a surplus of £10.1bn.

Director general of the Confederation of British Industries Carolyn Fairbairn said: “This was a good spending review for longer-term investment in the economy but there’s a sting in the tail in the size and scope of the Apprenticeship Levy.

“Businesses will be pleased to see the chancellor staying the course on deficit reduction, his commitment to an industrial strategy, and the emphasis on nurturing a vibrant business community.

“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.

Managing director of The Forum of Private Business Ian Cass said the forum was pleasantly surprised at today’s announcements, particularly the 50% increase in infrastructure capital spend and the focus on skills.

“I would have liked the option of multiple platforms for paying HMRC until all business owners have access to high speed broadband," he added. "I am however relieved that the hourly level of the living wage has not been accelerated to avoid tax credit reduction.”

He said it remained to be seen how the 17% BIS budget cut would mean for business.