What does Rachel Reeves' budget mean for skills?

Hidden among the many messages within last week’s Budget announcement were a few quiet but critical changes for the world of skills.

Below, I’ll break down what’s changing and what you need to do moving forward to be strategic with apprenticeship funding. Barriers are coming down, more flexibility is coming, and if we use them right, these changes could accelerate skills development across the UK workforce.

The headline changes

1. Full funding for apprentices aged 16–24 in SMEs

Big news for small employers. The government will now fully fund apprenticeships for all 16–24-year-olds in SMEs. Previously, this only applied up to age 21. The idea is to reducing cost pressures for smaller businesses and boosting youth employment, both welcome goals. However, the rise in minimum wage for all workers means that from April Apprentices aged 19 and under, or over 19 in their first year of working, will be paid £8 per hour instead of £7.55, representing an additional cost to employers.

2. Levy funds can now cover modular training

The Growth and Skills Levy is ever evolving. Employers will be able to use levy funds for shorter, flexible “apprenticeship units” rather than committing to full programmes, typically 12-18 months. Units could offer more agile, more targeted skills development more in line with the urgency of skills gaps in industries.

3. Levy expiry window reduced to 12 months

Funds in your digital account will now expire after 12 months instead of 24. This means businesses will need to plan and act faster to make the most of their levy

What does this mean for businesses?

There’s opportunity here, and also more urgency.

Simply put, if you’re an SME, doors just opened for you to attract and develop new talent with funded training for all employees under 25. For larger businesses, too, you can now spend your levy on a more flexible way by utilising the new, more modular ‘apprenticeship units’.

The shorter expiry window might feel like added pressure – more on that later - but it’s also a chance get apprenticeships higher on the agenda, and be more proactive about smart levy spend. With the right provider support, you can turn it to your advantage.

Regional growth matters – here’s how this policy helps

The funding boost for under-25s in SMEs is, in our view, the unsung highlight of the Budget. Here’s why it matters:

SME support: Smaller businesses often struggle with upfront training costs. Removing these barriers encourages more apprenticeship starts. A good thing for businesses, learners, the workforce and economy.

Youth skills development: Expanding eligibility strengthens vocational pathways and helps tackle persistent skills shortages. With numbers of young people 16-24 not in education, employment or training (termed ‘NEET’) sitting at roughly 946,000, entry level opportunities to get young talent into work and not onto benefits is critical priority.

Economic growth: National productivity depends on local delivery. We’re working with regional government to support this. The new Budget changes align with efforts to drive regional development through skills investment.

Addressing concerns: 12-month expiry, 75% co-investment and loss of 10% top up

Last week I attended the National Apprenticeship and Skills Awards, and the new budget was naturally a hot topic of conversation. I listened, and here’s the truth about the immediate reaction to the announcement: Employers are concerned that due to the new, shorter expiry period, ‘spending your levy’ has become even more restrictive and difficult - shifting to a 12-month pot feels more difficult to manage and spend.

But I want to reassure you. Modular units make levy spend more flexible and timely, easing this pressure. Yes, the apprenticeship manager role may feel more demanding for a time - that’s where provider support and managed services become critical. Businesses don’t have to navigate this alone.

Another main concern was the co-investment proportion rising to 75% for levy payers. In essence, it means not only will levy paying businesses (that’s big employers with an annual payroll bill over 3million) will have less time to spend their paid-in funds on training - but if they do spend it, they will pay 75% of all apprenticeship costs directly.

While the goal from a government perspective is to get commercial funds into the coffers from large employers, it runs the risk of acting as a deterrent. Employers will need trusted support from their training partners to balance costs and maximise valaue by using levy in a targeted, strategic way.

Apprenticeship Units offer more flexibility, and that’s good, but employers will be juggling the need to spend faster while ensuring spend control to avoid additional charges. It’s a fine line to tread, and partnering with the right provider will be more critical than ever.

Finally, the 10% top up previously paid in by government against levy contributions will be no longer. This feels like an additional blow to skills funding, and will once again require sharper planning to utilise your funds to the fullest.

The bottom line: find the opportunities

This announcement is a mixed bag both opportunities and challenges for skills. But the challenges and added complexity can be managed - and even turned to your advantage.

I believe the biggest opportunity to land with this new Budget is fully funded apprenticeships for 16–24-year-olds in SMEs.

This is a key foundational pillar that the UK needs for sustainable workforce growth and economic success. If you’re an SME facing talent shortages or skills gaps (and let’s be honest, that’s most SMEs), now is the time to act.

To talk about how to get the most out of the levy changes, get in touch with our team.