Apprenticeship funding reforms: Strategic investment or lost opportunities?

Last month the government announced a strategic shift in funding for Level 7 apprenticeships. From 1 January 2026 levy-paying employers will only be able to use the funds they have paid into the levy and will not receive additional co-investment for most learners aged 22 and over. In order to “back the next generation” and increase British workers’ skills, the government will increase its focus on training those aged 21 and under.^[1] The change forms part of the government’s ‘Plan for Change’ which seeks to align immigration policy with domestic skills development goals. We consider whether the execution in respect of apprenticeship funding risks extending the current skills gap in management capability in already struggling sectors like health and social care.

Background

The apprenticeship levy was introduced in April 2017 by the Conservative government to increase investment in apprenticeship training, encourage employers to take ownership of workforce development and fund the expansion of high-quality apprenticeships across all sectors. Apprenticeships range from Level 2 (equivalent to GCSEs) and Level 3 (equivalent to A-Levels) to Level 7, or degree apprenticeships, which are equivalent to a master’s degree.

Levy-paying employers are those with an annual pay bill of more than £3 million from which 0.5% of the portion above £3 million is paid into the apprenticeship levy. Once an employer’s levy funds are exhausted, a 95% co-investment from the government is available, heavily subsidising apprenticeship costs. For employers with an annual pay bill under £3 million, apprenticeship funding is through a co-investment model with employers paying 5% of training and assessment costs and the government paying the remaining 95%.

Changes to Apprenticeships and Access to Levy Funding

The shift in funding away from Level 7 apprenticeships means that levy-paying employers can still fund apprenticeships from their own levy pot but will no longer be able to access the usual 95% government co-investment once their levy balance is exceeded.  Non-levy paying employers will have to fully fund Level 7 apprenticeships for most learners aged 22 or over. This marks a significant shift from previous policy where government co-investment was available regardless of the apprentice’s age or level.

Government co-investment will still be available for Level 7 apprentices aged 16 to 21, care leavers under 25 and apprentices with an Education, Health and Care Plan (“EHCP”).  The government has also said it will continue to support learners who started their level 7 apprenticeship prior to 1 January 2026 through to completion^[2].  The changes could lead to a sharp decline in uptake of advanced apprenticeships in education and healthcare sectors where many staff are mid-career professionals seeking to develop into leadership roles.

Long-term gains?

Statistics have found that 1 in 8 16 to 21-year-olds are not in education or training^[3]. The government plans to use its £3 billion apprenticeship budget to introduce new foundation apprenticeships from 1 August 2025 for 16 to 21-year-olds (and up to the age of 25 for care leavers, prison leavers or those who have an EHCP). These apprenticeships will be available in construction, engineering, health and social care, and the digital sector. These are Level 2 apprenticeships and have a minimum duration of 8 months. The government hopes they will equip young adults with skills that are most needed in the British workforce and support the transition from education to work, and into higher level apprenticeships. Employers can receive up to £2,000 from the government to support their first intake.

The government will also increase the charge for employers recruiting outside the UK, the Immigration Skills Charge, by 32%^[4]. This is estimated to open 45,000 additional training places for UK residents. As well as the government’s commitment to training young adults, this policy change also reflects the government’s plan to create workforce strategies to reduce dependency on migration as set out in the “Restoring control over the immigration system” White Paper^[5]. However, without parallel investment from employers to continue to build management capabilities previously harnessed through government co-investment, the UK’s skills gap may widen, at least in the short term, until employer funded plans for building capability can be put into place.

Sector Comments

The new funding policy has been met with significant criticism, with education and health sector leaders sharing the concern that the decision to limit funding of Level 7 apprenticeships for older learners will undermine the breadth and value that apprenticeships offer.

Shadow Education Minister, Neil O’Brien has expressed concerns that the change will damage public services, in particular the NHS. A concern shared by Danny Mortimer, Chief Executive of NHS Employers, who stated the decision will result “in real concern in the NHS”, which provides one third of all apprenticeships in the public sector. He further stated that apprenticeships have provided “an increasingly important method of investment in experienced clinical staff.”^[6] Furthermore, Lizzie Crowley, Senior Skills Adviser at the Chartered Institute of Personnel and Development (“CIPD”), said this change is “unlikely to meaningfully boost youth participation, given that fewer than one in 10 apprentices who train at this level [Level 7] fall within this age bracket”.

The Russell Group has also criticised the decision, highlighting the effectiveness of higher-level apprenticeships in the public sector and NHS. The Russell Group’s Policy Manger, Jamie Roberts, has further stated that “universities across the sector will be concerned about the effect on wider apprenticeship provision. Without Level 7, it may not make economic sense for some to continue with any apprenticeship provision. This could be a significant loss at a time when apprenticeship demand is rising.”^[7]

Looking Ahead

The decision to withdraw funding for Level 7 apprenticeships is expected to significantly limit access to these programmes for older learners. While the focus on supporting young adults in the workforce is clearly beneficial, the shift in funding is yet another blow to employers already under increased financial burden and workforce pressures, particularly in the health and social care sector where the government’s much awaited 10-year plan, due to be published later this month, is likely to call for strong leadership to transform delivery. The objective of the scheme remains the same, to encourage employers to take ownership of workforce development. However, reducing funded options may adversely impact the sectors where investment is needed to build a sustainable workforce that is not reliant on immigration. 

We will be monitoring developments in this area and our team is on hand to assist with your regulatory queries.

Co-authored by Areesha Qureshi, Solicitor Apprentice

^[1] Next generation of builders and carers set to rebuild Britain - GOV.UK

^[2] Changes to funding for level 7 apprenticeships – Apprenticeship Service Support

^[3] Young people not in education, employment or training (NEET), UK - Office for National Statistics

^[4] Next generation of builders and carers set to rebuild Britain - GOV.UK

^[5] Restoring control over the immigration system white paper

^[6] NHS Employers responds to the government’s plans to end funding for level 7 apprenticeships | NHS Employers

^[7] Response to changes to Level 7 apprenticeship funding | Russell Group