Rachel Reeves has used today’s Autumn Budget to unveil a sweeping £1.5bn skills package aimed at tackling the UK’s entrenched labour shortages and sluggish productivity.
The Chancellor said the country “cannot compete without investing in our people”, pitching the reforms as central to her long-term economic renewal plan.
The measures represent the biggest shake-up of the skills system in a decade, bringing apprenticeships, digital training, employer incentives and AI-focused programmes under a single, more targeted framework.
Treasury officials say the goal is to close shortages across engineering, construction, health and the fast-expanding AI sector, areas where employers report chronic gaps.
New skills levy and youth guarantee
The most eye-catching move is the £820m Youth Guarantee, which will provide paid six-month roles for young people who have been out of work for 18 months.
Reeves said too many young people had been “written off”, and argued that early work experience is essential for long-term economic resilience.
Alongside this, the government will introduce a Growth and Skills Levy, replacing the apprenticeship levy from 2026.
The redesigned system will fully fund SME apprenticeships for under-25s and open up shorter, modular courses in areas the Treasury says are vital for future growth.
Business groups broadly welcomed the direction but urged clarity on delivery.
Tech firms have argued that the UK’s productivity ambitions hinge on widespread digital upskilling.
Head of Zoom UK, Louise Newbury-Smith, argued “continued investment in digital skills, modern infrastructure and innovation-friendly policies will be essential”.
Meanwhile, Snowflake VP James Hall stressed that AI programmes must be grounded in real operational needs rather than high-level strategy, in order to “build a workforce ready to harness AI responsibly and drive meaningful economic growth”.
Similarly, IFS Nexus highlighted the importance of extending AI investment into “frontline industries” such as water, energy and manufacturing.
Concerns over student levy
The Budget also introduced a new charge on international students, a move universities warn will deepen existing financial pressures and undermine domestic skills ambitions.
“Our universities are in crisis. 15,000 jobs are at risk and four thousand courses face closure, while funding per student in England has collapsed over the past decade, leaving a £6.4bn shortfall”, said Jo Grady, general secretary at University and College Union (UCU).
“Rather than address the broken model that created this gap, Labour has imposed a regressive levy on international students.”
Employers, meanwhile, say rising labour costs elsewhere in the Budget could dilute the gains from training reforms if businesses struggle to take on new staff.
Despite mixed reaction, Reeves said the package marks a decisive shift toward a skills system shaped by employer demand and built around productivity rather than “spin”.
“With nearly a million young people in this position, greater funding is essential to ensure fair access to career opportunities and to support the government’s ambitions for growth and reduced unemployment”, said Charlotte Bosworth, chief executive of Lifetime.
The success of the reforms now rests on whether they can be implemented quickly enough to close the UK’s widening skills gap and the ‘growth’ the government is banking on.