Budget 2025: Youth Guarantee, “Free” Apprenticeships and the Growth & Skills Levy

11/30/202510 min read

In the 2025 Budget, Rachel Reeves has promised to make training for under‑25 apprenticeships ‘completely free’ for SMEs and to put £820m behind a new ‘Youth Guarantee’. In skills terms, the headline is simple enough: more young people in work and training and fewer stuck in the NEET statistics. Through free apprenticeship training for under‑25s in SMEs, a Youth Guarantee funded to the tune of £820m, and a renamed Growth & Skills Levy, everything seems designed to signal a reset in how the UK develops talent.

But even with the rebadging of the Apprenticeship Levy to the Growth & Skills Levy, what has actually changed? Anyone who has tried to run an apprenticeship programme knows the devil is in the funding detail: who really pays for what and how much of the money raised by large employers ever reaches SMEs and young people? So is this actually meaningful reform or just another new (massively overpriced) logo?

How does the system works now?

Right now, employers sit in two camps: “levy‑payers” and everyone else. A levy‑payer is defined by the size of the employer’s wage bill: if a company has a wage bill of £3m or more, it is required to pay the Apprenticeship Levy. In practice, that means large organisations with a wage bill of £3m or over pay 0.5% of that bill (minus a £15,000 allowance) into a digital apprenticeship account.

£3m × 0.5% = £15,000 (– £15,000 allowance) = £0

£6m × 0.5% = £30,000 (– £15,000 allowance) = £15,000

£60m × 0.5% = £300,000 (– £15,000 allowance) = £285,000

The government then tops up whatever lands in that account by 10%, and that money can only be used to buy approved apprenticeship training for the levy‑payer, or it can be transferred to other employers in their supply chain for the same purpose. If a levy‑paying employer uses up all the funds in its digital account but still wants to put more staff through apprenticeships, the government will currently cover 95% of any further eligible training costs, with the employer contributing the remaining 5%. Smaller companies whose wage bill falls below the £3m threshold do not pay the levy directly. Instead, the government uses levy funds (including a lot that large employers never spend) to subsidise apprenticeship training for SMEs. To date, SMEs have typically been expected to contribute a small co‑investment for apprentices aged 22+ (usually 5% of the training cost), with the government picking up the remaining 95%. For younger apprentices, particularly those under 22, the government has generally covered 100% of the training costs.

Based on historic patterns, only around 65–70% of the money paid into the levy pot by large employers has actually been used for apprenticeship training, leaving roughly 30–35% unspent. Of that unspent share, a substantial portion has been used to support SME apprenticeship training, with the remainder (often described in the sector as the “top‑slice”) retained by the Treasury and allocated to other skills and employment priorities. Levy funds have also always come with a timer: if they are not used within 24 months, they expire and effectively flow back to government, a big reason behind the high estimated value of the unspent “top‑slice”. For 2025, the top‑slice has been estimated at around £820m and earmarked to help fund the new Youth Guarantee.

What is actually changing?

First, the good news for SMEs... the 5% co‑investment is going for all apprentices under 25. Up to now, smaller employers have usually had to pay 5% of the training cost for apprentices aged 22 and over, with the government covering the remaining 95%. That 5% contribution has now been scrapped for under‑25s, which means apprenticeship training for eligible under‑25s in SMEs will be fully government‑funded.

This sits alongside the new £820m Youth Guarantee, which is aimed at 18 to 21‑year‑olds who have been claiming Universal Credit for 18 months without being in work or education. It offers them a six‑month paid work placement and is explicitly targeted at young people at clear risk of long‑term unemployment. Declining a suitable placement without good reason may lead to benefit sanctions, and final details on eligibility and criteria are being tied into the wider Budget 2025 package. The Guarantee is intended to make sure every 18–21‑year‑old gets an offer of a college place, an apprenticeship, or tailored job support, with paid work after a period on benefits. In theory, this should mean more young people being nudged towards apprenticeships, and fewer falling through the cracks between education, work and welfare.

For levy‑payers, though, the picture is more mixed. The 10% government top‑up on levy accounts is being removed, so from now on what you see in your digital account is just what you have paid in. At the same time, the expiry window on levy funds is being cut from 24 months to 12 months, effectively doubling the speed at which unused money drops out of employer accounts and into the Treasury’s “top‑slice”. Under the new rules, once a levy‑payer has exhausted the funds in its account, the government’s co‑investment rate also drops from 95% to 75%, meaning the employer’s contribution jumps from 5% to 25% for any additional apprenticeship training. That means large employers will have less free money in the pot, less time to spend what they do have, and a much bigger bill if they want to go beyond it.

Looking slightly further ahead, the biggest structural shift is that the Apprenticeship Levy is being folded into the broader Growth & Skills Levy from 2026. The aim is to move towards more flexibility: allowing levy funds to be spent not just on full apprenticeships but also on shorter, modular training linked to growth areas such as digital, green skills and AI. The detail on these “apprenticeship units” or skills modules is still emerging, but the basic idea is that employers will have more options in how they use their pot, even as the pot itself becomes a little tighter and faster‑expiring.

That flexibility is, on paper, one of the more hopeful parts of the reforms. It should allow levy‑payers to back much more targeted training: not just hard technical skills, but also human skills like confidence, resilience and adaptability that sit underneath performance in any role. Done well, this opens up space to experiment with what actually works for different teams and sectors, rather than forcing every bit of development into a single, long apprenticeship route.

Who really wins?

On the surface, the winners are clear. SMEs get free training for under‑25 apprentices, and the £820m top‑slice is being channelled into a Youth Guarantee designed to pull more young people out of the NEET statistics and into work, training or education. For young people who have been stuck on Universal Credit with no job or course to go to, a fully funded apprenticeship place or a six‑month paid placement is a big step up from where they are now.

But making it cheaper to put young people on programmes is not the same as helping them to build a career. Employers consistently say that what they struggle to find are not just technical qualifications, but the human skills that keep people in work: confidence, communication, teamwork, resilience and adaptability. Research across sectors shows that these “soft” skills drive engagement, performance and retention, and that many school and college leavers still arrive without them.

That is where the risk sits in this reform. The Growth & Skills Levy creates more room for modular courses in areas like AI, digital and green tech, which absolutely matter for the future economy. But unless some of that new flexibility is used to invest just as seriously in human skills, there is a real danger of churning young people through technically focused programmes without giving them the mindset and behaviours to stay, grow and thrive in work.

With schools and colleges already under pressure, it is early careers and talent teams who are now being asked, in effect, to build a generation. Employers will be the ones who have to turn a “free” apprenticeship place or Youth Guarantee work placement into a genuine launchpad: creating time and space for young people to practise communication, teamwork, resilience and self‑management alongside the day‑job training. If that happens, this could be the moment when the system finally treats human skills as non‑negotiable, rather than a nice‑to‑have afterthought; if it does not, there is a risk that even a more generous funding regime will leave the underlying NEET problem largely untouched.

What should employers do now?

For employers, the question is no longer “Is there funding?” but “What are we actually buying with it?” Free under‑25 apprenticeships in SMEs and a Youth Guarantee funded from the top‑slice create more routes into work for young people – but the value of those routes will depend almost entirely on how employers choose to use their levy. Simply filling apprenticeship slots or rebadging existing training to soak up the pot will not fix NEET levels, retention problems or skills gaps.

The first move for early careers and L&D teams is to design programmes that deliberately balance technical and human skills. Employers repeatedly report that new starters struggle less with using tools and more with things like communication, teamwork, resilience and managing themselves under pressure. That means building in structured time for practicing live projects, coaching, feedback, and reflection to develop confidence and adaptability alongside the technical curriculum is of utmost importance.

The second move is to ring‑fence part of the levy (and the new Growth & Skills flexibility) for high‑quality human‑skills provision, not just more specialist technical badges. The emerging Growth & Skills Levy framework should make it easier to fund shorter modules, pre‑apprenticeship programmes and blended learning aimed at core employability skills as well as digital or AI proficiency. Employers who use that freedom well will be the ones who turn “free” training places into pipelines of confident, work‑ready young people who stay and grow, rather than cycling endlessly through cohorts who leave as soon as the programme ends.

Reform or rebrand?

Taken at face value, this package does a lot right. Free training for under‑25 apprentices in SMEs, a Youth Guarantee funded from the top‑slice, and a more flexible Growth & Skills Levy all point in the same direction: more money and more routes for young people to get into work and training, and more options for employers to shape that training. In a system where employer training spend and adult skills participation have been sliding for more than a decade, any serious attempt to push fresh investment into early careers looks like a step forward.

But it does come with trade‑offs. Large levy‑payers lose the 10% top‑up, face a shorter expiry window on their funds, and will have to contribute much more if they want to train beyond what their pot will cover, all at a time when many are already wary of the levy’s complexity and cost. There's also the concern that greater flexibility always carries a risk that funds drift into low‑impact or “business as usual” training that employers would have run anyway, rather than being targeted at the young people and skills where it could move the dial on NEETs, productivity and progression.

So whether this becomes real reform or just an expensive rebrand will depend less on the logo and more on the choices that get made from here. If government uses the new levers to prioritise high‑quality, human‑skills‑rich programmes for young people, and if employers lean into that by designing early careers pathways that genuinely build confidence, communication, teamwork and resilience, the Youth Guarantee and Growth & Skills Levy could add up to more than the sum of their parts. If not, there is a real danger that in a few years’ time, the UK will still be talking about stubborn NEET rates and skills gaps - just under a different nameplate on the pot of money.

Giving back to the employers

If this reform has a simple message for employers, it's that the money is finally moving closer to where the problem is, but only the organisations can decide whether it turns into real opportunity based off of the choices they make. Free under‑25 apprenticeships in SMEs, a funded Youth Guarantee and a more flexible Growth & Skills Levy create more ways to bring young people into your organisation. What it doesn't do on its own, is guarantee that those young people will have the confidence, communication, resilience and teamwork skills to stay, grow and thrive once they arrive.

For early careers and L&D teams, the question now is not “Can we afford to invest?” but “What kind of people are we building with this investment?” Employers who use the new system to balance technical training with serious, well‑designed human skills development will see the return in retention, performance and culture. Employers who treat the Growth & Skills Levy as just another pot to be emptied may find that, a few years from now, the UK is still talking about NEETs and skills gaps – only this time with one more rebrand behind it.

If your organisation is looking for a partner to help build that blend of technical and human skills into early careers and apprenticeship programmes, that is exactly the gap Unscripted Academy was created to close. Working with employers to design training that grows confidence, communication, resilience and adaptability alongside role‑specific skills, it exists to help early careers teams turn “free” training into lasting, high‑performing talent.

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