Budget 2025 for FE & Skills | Sector Reaction

Chancellor Rachel Reeves has delivered Budget 2025, announcing new student finance measures and confirming funding for skills reforms first outlined in October’s Post-16 Education and Skills White Paper.

International Student Levy

From August 2028 (academic year 2028-29), higher education providers will pay a levy of £925 per international student per year of study. Providers will receive an allowance for the first 220 international students per year, for whom they will not pay the charge.

The income raised will be reinvested into higher education and skills, including funding means-tested maintenance grants for disadvantaged students studying priority courses from academic year 2028/29.

Employer National Insurance

The Secondary Threshold (per-employee threshold for employer National Insurance liability) will be maintained at £5,000 from April 2028 until April 2031.

Youth Guarantee and Growth and Skills Levy: £1.5 Billion

The Chancellor confirmed over £1.5 billion in funding over the Spending Review period for the Youth Guarantee and Growth and Skills Levy, policies first outlined in the Post-16 Education and Skills White Paper published in October 2025.

Youth Guarantee (£820 million)

The Youth Guarantee aims to ensure all young people aged 16-24 have access to education, employment or training. The initiative addresses NEET rates which have reached 12.7% in Q3 2025. Key elements include:

• Jobs Guarantee Scheme: A guaranteed six-month paid work placement for every eligible 18-21 year old who has been on Universal Credit and looking for work for 18 months. The scheme will cover 100% of employment costs for 25 hours a week at the relevant minimum wage, plus additional wraparound support.

Growth and Skills Levy (£725 million)

The Growth and Skills Levy, first announced by the Prime Minister in September 2024, will replace the Apprenticeship Levy. Key elements include:

• Fully funded SME apprenticeships: 100% government funding for apprenticeships for eligible people under 25 at small and medium-sized businesses
• Short courses: From April 2026, shorter training courses in priority sectors, including digital, engineering, advanced manufacturing, clean energy, and defence
• Technical Excellence Colleges: Specialist colleges in advanced manufacturing, clean energy, digital technologies and defence sectors

Apprenticeship System Reforms from April 2026

• Levy expiry window reduced to 12 months (currently 24 months)
• Government co-investment rate changed to 75% for levy-paying employers once they have exhausted all their funds
• Removing the additional uplift to levy accounts
• Working with employers to streamline the suite of apprenticeship standards available

Minimum Wage Increases

From 1 April 2026:

• National Living Wage: Increases by 4.1% to £12.71 per hour (workers aged 21+)
• National Minimum Wage (18-20 year olds): Increases by 8.5% to £10.85 per hour
• National Minimum Wage (16-17 year olds and apprentices): Increases by 6.0% to £8.00 per hour
• Accommodation offset: Increases by 4.1% to £11.10 per day

These increases were announced on 25 November 2025, one day before the Budget.

Post-16 Education and Skills White Paper

The Budget builds on the Post-16 Education and Skills White Paper published in October 2025, which set out the government’s vision for a skills system in England that:

• Breaks down barriers to opportunity
• Meets student and employer needs
• Widens access to high-quality education and training
• Supports innovation, research and development

The government has stated that further details on the Youth Guarantee and Growth and Skills Levy will be announced shortly.

Sector Reaction

Charlotte Bosworth, CEO of Lifetime, said:

“We are disappointed by the Chancellor’s decision to maintain higher business rates for properties valued above £500,000. This policy places additional financial pressure on employers and risks undermining investment in training and apprenticeships. The impact will be felt most acutely in sectors such as retail, hospitality, and care, which already face high staff turnover and persistent skills shortages.

“While the increased funding for apprentices under the age of 25 is a positive step, the continued withholding of unspent apprenticeship levy funds is also a missed opportunity to address the urgent challenge of young people not in employment, education, or training (NEETs). 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.

“While we welcome the focus on key industrial strategy sectors and non-apprenticeship skills courses, there is a real risk that vital initiatives such as apprenticeships in retail and hospitality will be deprioritised. This would undermine efforts to tackle the NEET challenge and weaken the pipeline of skilled workers in industries critical to the UK economy.”

“We look forward to more detail on apprenticeship units and how cross-sector skills will be tailored to industry needs ahead of April 2026.”

Jo Grady, general secretary at University and College Union (UCU) said:

“Our universities are in crisis. Fifteen thousand jobs are at risk and four thousand courses face closure, while funding per student in England has collapsed over the past decade, leaving a £6.4 billion shortfall. Rather than address the broken model that created this gap, Labour has imposed a regressive levy on international students.

“This new tax on education will do more harm than good and undermines the vital contribution international students make. Labour is echoing Reform by scapegoating migrants instead of addressing the real, deep-rooted challenges facing higher education.”

Rain Newton-Smith, CBI Chief Executive, said:

“The government’s growth mission is currently stalled. While the Chancellor has succeeded in creating the fiscal headroom she needed, a scattergun approach to tax risks leaving the economy stuck in neutral.

“Adding national insurance to salary sacrifice pension contributions curtails savings and pushes up the cost of employment. Coming on top of the rise to the National Living Wage, increased employment costs make it even more expensive for employers to offer jobs to young people and jobseekers.

“The government should be commended for protecting capital spending, boosting innovation, sticking with the corporate tax roadmap, and hiring the planning officers business asked for. But business will still rue a missed opportunity to be bold and press on with much needed tax reform, simplification and alignment of incentives to catalyse business investment and job creation.

“With business investment and profitability weaker as a result of these decisions, the government must now double-down on leveraging the experience and expertise of enterprise to find the step-change in economic growth that has proven elusive. One of the biggest things the government can do right now is get round the table with business to find a landing zone on the Employment Rights Bill that works for everyone.”

Lee Biggins, Founder and CEO of CV-Library, said:

“This budget brings another jobs tax on businesses that adds to the employment cost and will further hit hiring. Organisations have already seen the cost of employment rise with increased employer NICs, and the measures announced today will simply increase those costs further. With job creation well below pre-covid levels, this budget needed to incentivise businesses to hire – but this is simply adding more cost and risk.

“We had hoped the government had learned their lesson with plenty of evidence that its last budget led to less hiring. Now they’re simply going back for more. Job creation is the foundation for economic growth, and this budget – freezing NIC thresholds, reducing salary sacrifice allowances, increasing minimum wage, alongside the added risks brought by employee rights bill – does the exact opposite.”

Nic Riemer, CEO of Invigilator, said:

“Whilst it is disheartening that more has not been done on education and digital access, it is promising to hear the Chancellor directly target child poverty, especially through measures focused on support within the home. The removal of the two-child benefit cap will increase support for 560,000 families and is expected to lift 450,000 children out of poverty in the coming years. That matters, because the democratisation of education begins with a safe, stable home environment in which children can learn, grow and progress.

“But equal opportunity also depends on digital equality, and this is where today’s Budget was silent. Digital inequality is still holding thousands of students back. Many households lack reliable internet, and pupils in low-income families are far less likely to have access to a dedicated device. When lessons and assessments depend on stable connectivity, those learners are excluded before they even begin.

“As budgets tighten and more young people juggle part-time work or face being priced out of further study, the system needs assessment pathways that are flexible, fair and resilient. Welfare changes will help some families, but they do not remove the structural barriers created by digital access gaps.”

Dr Emily Andrews, Director of Policy and Research at Learning and Work Institute (L&W), said:

“Beneath the noise, today’s Budget – and the forecasts underpinning it – laid bare the ongoing challenge of persistently low growth combined with rising demand for public services. Measures to get more people into work and improving their skills can contribute to jump starting growth, breaking us out of this loop. With almost one million young people not in education, employment or training, it was good to see an announcement of funding for under 25 apprentices in SMEs, alongside a recommitment to a more comprehensive ‘Youth Guarantee’. We look forward to seeing promised details on Growth and Skills Levy changes and the Youth Guarantee offer – and hope to see both reaching as many young people as possible. But there is so much further to go: our estimates show that returning adult skills improvements to 2010 levels would boost the economy by £23 billion. There are measures in train that will make a difference, but we need bigger action to match the rhetoric.”

Pepe Di’Iasio, General Secretary of the Association of School and College Leaders, said:

“We are pleased that the Chancellor has announced that the two-child benefit limit will be scrapped. Its introduction eight years ago by a previous administration has been a disaster for hundreds of thousands of children who have been plunged, or pushed deeper, into poverty. Schools and colleges see the impact of this every day with pupils arriving who are cold, hungry, poorly clothed, and living in inadequate housing. This not only detrimentally affects the wellbeing of these children, but also impacts on their readiness to learn. Getting rid of this damaging policy is a step in the right direction – morally, socially, and educationally – and comes on top of the welcome decision to expand the eligibility of free school meals to every pupil whose household is on Universal Credit. The government deserves recognition for these major policy decisions in a tight financial climate. It has shown resolve on behalf of some our most vulnerable youngsters. However, there is still much work to do to reduce the appallingly high rate of child poverty in the UK.

“Turning to the parlous state of education funding, it is deeply disappointing that there was nothing in the Budget speech which recognised or addressed the huge financial pressures on schools and colleges. While we understand that departmental spending has been set in the longer-term spending review earlier this year, we do not think this is sufficient for the future, and certainly doesn’t address the problems happening right now – with many settings having to cut educational provision in order to balance the books. The Chancellor’s announcement of more money for school libraries and playgrounds – welcome though this is – amounts to a drop in the fiscal ocean. Schools and colleges desperately need government action now as well as a commitment to improved and strategic investment in the future. The government cannot continue to ask schools and colleges to do more with less.

“We are very concerned to see that the Office for Budget Responsibility has warned the government that its plans to absorb the full cost of SEND provision into existing departmental spending in 2028-29 would imply a 1.7% real fall in mainstream school spending per pupil. This would clearly have a catastrophic impact on educational provision and it is imperative that the government sets out how it intends to address this issue as a matter of urgency.”

Ben Harrison, Director, Work Foundation at Lancaster University, said:

“It is welcome the Chancellor has attempted to bear down on cost of living pressures facing millions of UK workers while taking action to boost the economy.

“However, OBR forecasts cast doubt on whether the measures in the Budget meet the scale of the challenge. It predicts a delayed reduction in inflation, continued sluggish growth and relatively few economically inactive people moving back into work before the end of this Parliament.

“Commitments to freeze rail fares and to cut family energy bills by an average £150 have the potential to lower the rate of inflation in 2026. But inflation is only forecast to return to the Bank of England’s target of 2% by 2027 – a year later than previously anticipated. Taken together with the decision to freeze tax thresholds for a further three years, the reality is many workers may continue to feel a squeeze to their living standards over the coming period.

“With growth forecasts downgraded, it is also not clear whether Budget measures will address a series of worrying trends in the UK labour market. Unemployment is at a four year high, youth unemployment is rising and health-related economic inactivity remains stubbornly at a near record 2.8 million.

“Yet the OBR suggests that previously announced funding for extra employment support will only support up to 40,000 inactive people back into work by 2029/2030. And while a new ‘Youth Guarantee’ may help more young people to secure a job, there remains a significant risk that interventions will arrive too late to have an impact this Parliament.”

Alex Sobel, Labour Member of Parliament for Leeds Central and Headingly, said:

“I’m disappointed that the Government has chosen to press ahead with a levy on international student fees. In constituencies like mine, universities are major economic drivers, supporting jobs, skills and world-leading research, and this tax risks undermining that foundation at the worst possible time.

“International education is a competitive global market, and the UK cannot take demand for granted, with many already stretching their finances to study here, and often choosing the UK over other destinations by the smallest of margins. 

“The reality is that this levy risks fewer opportunities for all students, and reduced funding for the research and teaching that keep the UK at the forefront globally.”

Henri Murison, Chief Executive of The Northern Powerhouse Partnership said:

“This tax will cause serious damage to the UK’s growth prospects. International students are not just numbers, they create jobs, support local businesses, and drive innovation across the country.

“The contributions of international students fund cutting-edge research and sustain access to university education for students nationwide. Instead of supporting growth and innovation, this levy will strain budgets, limit opportunities, and reduce universities’ ability to deliver the world-class education and research the UK is renowned for.

“It also sends the wrong signal to talent worldwide, risks long-term damage to universities and regional economies, and threatens the financial stability of institutions already operating under significant pressure.”

Nichola Hay MBE, Director of Apprenticeship Strategy and Policy at BPP and Skills England Board Member, says;

“We welcome today’s decision of a £750 million investment into skills, as it marks an important step in ensuring the UK workforce is equipped to meet future demands. 

“With the economy navigating economic uncertainty and rapid technological change, this updated focus on strengthening the skills system is both timely and necessary. At BPP, we advocate for the upskilling and reskilling of professionals at any age, which allows existing talent to adapt and, ultimately, flourish in an ever-changing labour market environment. 

“Moreover, at a time when there needs to be a greater focus on mobilising and supporting young people not in employment, education, or training (NEET), it is positive to see that small and medium sized businesses hiring talent under 25 years of age will be 100% funded. This will create additional opportunities for young talent to grow, and for SMEs to bridge niche skills gaps.

“From here, it’s vital that training providers work closely with employers to deliver robust, practical solutions that boost opportunity and growth and which genuinely reflect industry needs. For example, apprenticeships will continue to play an important role by opening accessible routes into professions and helping businesses develop, diversify and future-proof their workforce. 

“We now look forward to seeing these measures come into play, and driving tangible impact for learners and employers alike.” 

David Hughes, Chief Executive of the Association of Colleges, said:

“This was always going to be a tough budget, and so it is not unexpected that there is little in today’s announcement for colleges and to support skills and training. However the plans to invest £820 million in the Youth Guarantee and £725 million for the Growth and Skills Levy is a positive move and will enable colleges to support more young people so they do not end up not in education, employment or training (NEET).

“Given the high numbers of young people either unemployed or inactive, this investment is vital, alongside the important review led by Alan Milburn. It is also right to see colleges recognised as vital partners in the implementation of the government’s industrial strategy, with 29 Technical Excellence Colleges now announced and being established over the coming year.

“While 16-19 funding has improved, we believe more will be required in the coming years to deliver the ambitions and policy proposals in the recent Post-16 Education and Skills White Paper. To fully support the nearly one million young people who are NEET, there will need to be more adult education funding, and to ensure millions of adults are not left behind by the tech and green revolutions we are seeing before our eyes, that budget will need to grow even more.

“Last week, we launched our Adult Learning Pays campaign, which will highlight the crucial role adult education plays in communities, supporting better social cohesion and tolerance as well as supporting the UK economy. Unless that forgotten part of the education sector gets the funding it requires, as a country, we’ll struggle to reach our full potential.”

Professor Kathryn Mitchell CBE DL, Vice-Chancellor and Chief Executive of the University of Derby, said:

“We welcome today’s Budget announcement to support Team Derby – an ambitious initiative to drive growth in Derby as one of the UK’s key defence industry hubs. This investment demonstrates an alignment of ambition across industry, business, government and regional partners, all committed to securing long-term economic prosperity for the East Midlands and the UK.

“As a University for Industry we have established a powerful blueprint for higher education engagement with industry and government. From our work with Rolls-Royce, where we train 200 apprentices each year, to launching an Institute of Carbonomics in partnership with Intercontinental Exchange and McDonald’s UK&I, we are demonstrating how an industry-engaged university can deliver applied research, exceptional education and a talent pipeline that meets the evolving needs of employers and society.

“Working closely with our Team Derby partners, including Derby City Council and EMCCA, we look forward to helping shape and deliver these growth plans. This collaboration will not only enhance the prosperity of our region and its communities but also strengthen the UK’s competitive position in the global economy.”

Peter Cheese, chief executive of the CIPD, said: 

“The Chancellor has further raised employment costs for business but not done enough to articulate how to encourage growth and investment and boost productivity across the economy. Measures to boost growth and support businesses have never been more important, in light of strong headwinds to recruitment and investment in workforces.  

“Employment costs have increased across the board in the past year but there is still no coherent plan from the Government on how it will work with employers to improve productivity across the economy, to help businesses invest in skills and support technology adoption.  

“The Chancellor’s support for the UK industrial strategy’s key high growth and green energy sectors is welcome. But there was little to suggest the Government has a plan to support employers in improving skills development, opportunities and productivity for the 75% of the workforce that isn’t in these chosen industries. Unless this is addressed, it’s hard to see how there will be sustained improvement to economic growth or living standards. 

“The Government will also need to continue to consult, and even compromise on some elements of the Employment Rights Bill, to ensure they don’t put employers off hiring, particularly young people and other groups perceived as presenting higher recruitment risks.”  

“The 8.5% rise in the National Minimum Wage for young workers, though well-intended, risks further reducing job opportunities for this group, who are already hard hit by last year’s Budget changes.   

“The announcement of additional support for SMEs to take on an apprenticeship through subsidising the cost of training is welcome and should encourage more small firms to take on an apprentice. The further support set out for the Government’s Youth Guarantee is also a positive step. However, these measures are still not enough to address the collapse in apprenticeship provision for young people in recent years or tackle high and rising levels of young people not in employment, education or training. With long-term unemployment for young people at a 10-year high, we need bolder action on skills to prevent a lost generation. 

“We need an Apprenticeship Guarantee for 16-24 -year-olds, backed by targeted hiring incentives for SMEs to reduce recruitment costs and unlock apprenticeship starts in small firms which have significantly fallen in recent years.”  

“Capping salary sacrifice into workplace pensions will be seen as another unwelcome tax on businesses and workers. For many employers this will likely increase their employment costs while reducing workers’ pension contributions and their ability to save for retirement. We urge the Government to rethink this ahead of 2029 in the hope that growth measures will be successful and mean that this disruptive change is not needed.” 

Beatrice Barleon, Head of Policy and Public Affairs at EngineeringUK, said: 

“The Autumn Budget arrived at a pivotal moment for skills reform, with the recent post-16 skills white paper highlighting the declining provision of apprenticeships for young people, including in key Industrial Strategy growth sectors.

“The Chancellor’s decision to fully fund SME apprenticeships for young people under 25 – up from age 22 currently – will help to break down barriers to SME participation in apprenticeships. However, government must go further with additional wrap-around support for SMEs. We also welcome the commitment to invest an additional £725m in the Growth and Skills Levy over the next five years, and  look forward to seeing further detail ahead of April 2026.

“The government must ensure that this funding uplift is adequately targeted at young people and at filling critical skills gaps within sectors with the greatest employment demand, such as engineering and technology. Many of these are likely to be entry-level apprenticeships. Skills England are forecasting that over a third (34%) of the increased employment demand in the IS-8 sectors over the next decade will be in Levels 2 and 3 occupations.

“To deliver a resilient engineering and technology workforce in the long-term, government must ensure this investment is matched by an equal scale of ambition in the pre-18 education system. It should adopt a joined-up approach to talent development across pre- and post-18 by investing in high-quality STEM education for young people. This should be delivered both through lessons and STEM outreach activities, and ensure young people are informed and inspired through modern careers advice and guidance in schools.”

Petra Wilton, Director of Policy and External Affairs at the Chartered Management Institute (CMI), said:

“Many small and mid-sized businesses have long struggled to take full advantage of the apprenticeship system, so the move in the Budget to fully fund SME apprenticeships for people under 25 is welcome.

“We know that young people are struggling to find their feet in a rapidly changing economy, with record numbers facing underemployment or not in work at all. 

“Improving access to training such as apprenticeships and other recognised qualifications – including teaching core management and leadership skills – gives early-career workers the confidence they need.  These essential management skills can help them set career goals and signal to employers that they have a talent pipeline, as they look to future-proof their business.

“These small businesses will also need to ensure their line managers – the people taking on those young apprentices – have the training and skills they need to make a success of it. Our research tells us that people who feel they are treated well at work are 7.5 times more likely to stay.

“This means the Growth and Skills Levy funding needs to continue to support workers across the economy, at every age and stage of their working lives and regardless of their background.  

“The Government’s ambitious plans to invest in key growth sectors such as defence infrastructure and construction will only pay dividends for the economy if they are able to fill their skills gaps when it comes to management. Without skilled leaders and managers, the UK productivity gap persists, stalling growth and risking the very investments announced in today’s Budget.”

Sarah Beale, CEO at the AAT said:

“Apprenticeships add enormous value to our economy – so it’s great to see today’s Budget recognise that. The announcement of new funding for under 25s seeking an apprenticeship in small businesses, as part of the Growth and Skills Levy £725m package, is really welcome.

“We look forward to seeing more detail on the funding package to understand who will be eligible and how SMEs will be supported to bring apprentices into their business.

“However welcome this new funding is, today’s Budget has still failed to deliver for employers. With national insurance hikes from the last budget and now minimum wage increases, we risk creating a lost generation unable to get their first step on the job ladder.

“With a double whammy of a somewhat misguided perception that AI will replace entry level roles, and businesses simply unable to afford them, opportunities are becoming harder to find.

“What the country needs is a long-term strategy that tackles both youth unemployment and supports employers to give young people the opportunities they need. Today’s Budget offered some welcome initiatives, but there is still a long way to go to achieve that vision.”

Elaine Bowker, City of Liverpool College’s principal and CEO:

“We welcome this public endorsement from the government of the key strategic role that Colleges will play in delivering the skills and training needed by young adults and businesses across the City Region.

We remain steadfast in our commitment as the College for business to work with SME’s and large enterprise to deliver relevant, compelling apprenticeship programmes that deliver prosperity and social value to the region we serve.”

Sally Alexander, CEO and Principal, MK College Group, said:

“There is always a transformation of some kind from Budget Day announcements to policy in practice, but taking that on board, the suggestion that training fees will no longer be paid by SMEs taking on apprentices aged 22 – 24 has got to be seen as a positive.  Anything that removes barriers to companies taking on young people to train them has to be welcomed.  Of course, employers will still have to find these apprentices wages, and what would be really positive would be if a portion of that figure could also be met, through the apprenticeship employer incentive scheme (currently focussed on 16-18 years or 19-24 with an EHCP).

“Meanwhile, the Youth Guarantee Scheme will give a six-month paid work placement for every eligible 18 to 21 year-old who has been on Universal Credit and looking for work for over 18 months, presumably, having their wages paid by government.

“There may be a concern that employers will find the different approaches to different age groups a bit confusing, especially as some of them are already put off taking on apprentices because of what they see as an overload of bureaucracy.  The shame of it is that the two could not be combined to cover the whole age group.  That really would make a difference to NEET numbers.”

Chris Daly, Chief Executive of the Chartered Institute of Marketing said:

“SMEs are the backbone of skills development across the country, and the commitment to fully-funded apprenticeships for under-25s is a significant step in the right direction. Removing financial barriers opens the door for thousands of young people to gain valuable workplace experience while empowering smaller businesses to build the talent pipelines they urgently need.”

“The expanded youth guarantee – backed by £820 million over the next three years – signals a welcome investment in the future workforce. Ensuring every young person has access to training, education, apprenticeships, or meaningful support into employment is not only socially responsible, it is strategically essential for long-term growth.”

“For over a century, CIM has set the global standard for professional marketing and we welcome the increased investment in helping young people to kick start their careers. We are committed to supporting this agenda and marketers at every stage through industry-recognised training, qualifications, and close collaboration with apprenticeship trailblazer groups. Communities like CIM’s The Marketing Club further enhance this support by providing students with access to webinars, tools, and career advice – helping them secure the best possible start in the profession.”