Skills Funding and Policy Update: 2026 Reforms
Across 2026, the government is reshaping skills and apprenticeship funding. The changes affect how large employers manage levy pots, what SMEs pay, and which programmes remain publicly funded, with measures phased in across the year, but mainly occurring between January and September 2026. These changes are outlined below.
Overall, the reforms redirect public subsidy towards young people, the governments priority skills, and faster use of levy funds, while expecting larger employers to shoulder more of the cost of later‑career training.
What is changing and when
January 2026: Level 7 restricted to under‑22s
- Public funding for most Level 7 (masters‑level) apprenticeships is no longer available for new starters aged 22 or over, with exceptions for care leavers and those with an Education, Health and Care Plan (EHCP) up to age 25.
- This is intended to shift funding away from higher‑level, later‑career programmes and towards earlier‑stage routes.
April 2026: Growth and Skills Levy begin
- The Apprenticeship Levy will be renamed and expanded as the Growth and Skills Levy, allowing funds to be used for shorter modular training as well as full apprenticeship standards.
- A 50% rule will apply, employers may allocate up to 50% of their annual levy funds to units, while at least 50% must be retained for full apprenticeship programmes. For instance, if an employer receives £24,000 in levy funds each year, a maximum of £12,000 can be used for units.
Apprenticeship Units from April 2026
- These are short modular programmes (typically 30 to 140 hours, over 1 to 16 weeks).
- Initial topics will include AI Leadership, EV Charging Installation, Electrical/Mechanical Fitting, Modular Building Assembly, Solar PV, and Welding, reflecting identified skills gaps.
- Eligibility: Employed learners aged 19+.
- Funding: Levy‑funded for large employers and fully government‑funded for SMEs if the Apprentice is under 25. 95% government-funded; employer pays 5% co-investment, Apprentices 25 or over.
* Note: While these flexibilities begin in April, the move to 100% government funding for under-25s in SMEs officially takes effect from 1 August 2026.
Changes to the Apprentice Minimum Wage from April
- Apprentice minimum wage rises to £8/hour: Takes effect April 2026.
August 2026: Levy funding rules to change
Before the start of the 2026/27 academic year, the following funding changes will be implemented:
- Levy fund expiry: Levy funds will expire after 12 months instead of 24, increasing the “use‑it‑or‑lose‑it” pressure.
- Government top‑up removed: The 10% government top‑up to levy contributions will end, reducing the public subsidy element.
- Co‑investment for levy payers: Once levy funds are exhausted, large employers’ co‑investment rate will rise to 25%, with government meeting 75% of the cost.
- Co-investment for SMEs: The current 5% co-investment requirement for SMEs (non-levy paying employers) hiring apprentices under 25 will be removed, making training for this group 100% government funded.
The government has stated that these measures are intended to increase the pace at which levy funds flow into training, limit the build‑up of unused balances, and rebalance the funding mix between government and large employers.
September 2026: Some apprenticeship standards are being defunded
Sixteen apprenticeship standards will be removed for new starters from 1 September 2026. In the rail sector, the most significant removals will be:
-
- Team Leader Level 3
- Operations Manager Level 5
This change sits within the wider policy shift to gear apprenticeship funding more strongly towards young people and those at earlier stages in their careers.
SME and youth hiring incentives
Alongside changes to co‑investment and full funding for under‑25s in SMEs, new cash incentives will be introduced to encourage employers to hire young people.
- October 2026: £2,000 SME apprenticeship incentive
Small and medium‑sized employers will be able to claim a £2,000 payment for each new apprentice aged 16–24 they recruit. This is in addition to fully funded training for under‑25s in SMEs and is intended to lower the upfront cost of taking on young apprentices. - June 2026: £3,000 Youth Jobs Grant (all employers)
Employers of any size will be able to claim £3,000 when they hire an eligible unemployed young person aged 18–24 through the youth guarantee / Youth Jobs Grant route (for example, someone who has been on Universal Credit and out of work for a defined period). Where that hire is also taken on as an apprentice, this payment can sit alongside the apprenticeship funding reforms.
Side‑by‑side view of key changes
| Feature | Before | Change in 2026 |
| Fund expiry | 24 months | 12 months from August. |
| Government top‑up | 10% added to levy | 0% from August. |
| SME cost (under‑25s) | 5% co‑investment | 0% (training fully funded). |
| Levy payer co‑investment | 5% when funds exhausted | 25% when funds exhausted (from August). |
| Training type | Full apprenticeship standards | Standards plus modular units (from April) |
| The 50% Rule | Not applicable | Max 50% of levy spends on units (from April) |
| Level 7 eligibility | All ages | Primarily under‑22s (with specified exceptions). Changed in January 2026. |
What Members Should Consider Going Forward
The reforms outlined above represent a significant shift in the skills funding landscape. Members are encouraged to consider the following in their workforce and training planning.
Early careers investment: Funding changes mean that government support is now increasingly concentrating at the early careers level. With training for under-25s in SMEs becoming fully government-funded, and additional cash incentives available through the SME apprenticeship payment and Youth Jobs Grant, members looking to expand their early careers activity will find more funding support available here than elsewhere. For organisations seeking to bring career starters into their business, the current funding environment makes this a particularly opportune moment to act. Members should review their recruitment and training pipelines accordingly.
A corresponding reduction in support for higher level training: The flip side of the early careers investment is a real reduction in support for higher level training. Funding for Level 7 apprenticeships has been removed for those aged 22 and over, and a number of other higher-level standards have been defunded. Members should be aware that this may well be the start of a longer trend rather than a one-off change. If your organisation has a clear need for these skills, it is worth starting relevant programmes sooner rather than later. Waiting for the policy picture to settle could mean fewer options, not more.
Levy management: From August 2026, the window for spending levy funds will halve from 24 months to 12. At the same time, the 10% government top-up to levy contributions will be removed, and the co-investment rate for levy payers will rise sharply from 5% to 25% once funds are exhausted. Taken together, these could have significant cost and planning implications. Members should review their training plans now to ensure they are making effective use of their levy before funds lapse and are prepared for the higher costs that will apply when they do.
Staying close to the policy environment: As noted above, some of these changes may reflect a broader direction of government policy rather than isolated adjustments. Members are encouraged to monitor further announcements closely. NSAR will continue to track developments and provide updated guidance as the picture evolves.
NSAR is available to support members in navigating these changes. For further information please contact edward.hughes@nsar.co.uk.