What is the recent funding update for Apprenticeships?

The UK government’s Autumn Budget 2025 has introduced the most significant reforms to apprenticeship funding since the levy was first implemented in 2017. These changes aim to tackle youth unemployment, close skills gaps, and simplify the system for employers and training providers. Here’s what businesses, educators, and job seekers need to know.

1. Fully Funded Apprenticeships for Under-25s in SMEs

One of the headline announcements is that small and medium-sized enterprises (SMEs) will no longer pay any training costs for apprentices under the age of 25. Previously, SMEs contributed 5% of training costs for most apprentices, with relief only available for those under 22. This threshold has now been extended to 24, meaning training for all under-25 apprenticeships in SMEs will be completely free.

This measure is backed by £725 million in additional funding and is expected to encourage more SMEs to invest in early-career talent. Combined with the government’s Youth Guarantee, which allocates £820 million over three years to support young people aged 18–21 with apprenticeships, college places, or paid work placements, the reforms represent a major push to reduce youth unemployment. [feweek.co.uk]

2. Apprenticeship Levy Reforms: The Growth & Skills Levy

From April 2026, the existing apprenticeship levy will be replaced by the Growth and Skills Levy, designed to offer greater flexibility and broaden training options. However, the reforms introduce stricter rules for levy-paying employers:

End of the 10% Top-Up: Employers will no longer receive the 10% government uplift on levy contributions. Every pound paid in will now equal a pound available for training.
Shorter Expiry Window: Unused levy funds will expire after 12 months instead of 24, doubling the pressure on employers to plan and spend effectively.
Higher Co-Investment Costs: Once levy funds are exhausted, the government’s contribution to additional training costs will drop from 95% to 75%, increasing the employer share from 5% to 25%.

These changes are intended to reduce waste and accelerate the use of levy funds, but they also raise concerns about affordability and planning for large employers.

3. Introduction of Short Courses and Modular Apprenticeships

To improve flexibility, the government will introduce short-course apprenticeship units from April 2026, allowing employers to fund modular training through the levy. This move aims to make apprenticeships more adaptable to fast-changing skills needs, particularly in sectors like digital technology and green energy.

4. Wage Increases for Apprentices

From April 2026, the minimum wage for apprentices will rise to £8 per hour, up from £7.55. This increase is part of a broader uplift in minimum wage rates, designed to make apprenticeships a more attractive option for young people. [feweek.co.uk], [smallbusiness.co.uk]

5. Sector Priorities and Skills Investment

The Budget also earmarks investment for sectors critical to the UK’s growth, including healthcare, digital technology, green energy, construction, and manufacturing. These areas are expected to see expanded apprenticeship opportunities as part of the government’s long-term skills strategy.

Implications for Employers and Training Providers

For SMEs, these reforms represent a major opportunity to recruit and train young talent at zero training cost. For levy-paying employers, however, the changes mean tighter deadlines, reduced financial support, and higher co-investment rates—making strategic planning essential.

Training providers will need to adapt to shorter funding windows and prepare for the rollout of modular apprenticeships, while also supporting employers in navigating these changes.

The Bigger Picture

With nearly 946,000 young people currently not in education, employment, or training (NEET), the government’s £1.5 billion investment through the Youth Guarantee and Growth & Skills Levy is a bold attempt to address systemic challenges. Whether these reforms will deliver the intended boost to apprenticeship uptake and skills development remains to be seen, but they mark a clear shift toward prioritizing youth employment and workforce flexibility.