Skill up or fall behind: How the Apprenticeship Levy is shaping the UK workforce

Blog posts

17 Apr 2025

Meghna Sharma, Research Fellow

This blog was originally published in January 2025 on the website of Adzuna, one of the largest online job search engines in the UK. 

Apprenticeship Levy overview

The Apprenticeship Levy, introduced in April 2017, was a government initiative aimed at addressing skills shortages and promoting workforce development across the UK. It was designed to encourage large employers to invest in training by mandating them to contribute 0.5% of their annual payroll to a dedicated fund, which could then be reclaimed to support apprenticeships.

Over the years with rapidly evolving advancements in technology and changes in the labour market, many businesses reported difficulty in finding workers with the necessary technical skills, especially in areas where the country fall behind its European counterparts. Key issues include shortages in manufacturing, construction, healthcare, and digital sectors, along with limited vocational education pathways for school leavers. The rising demand for mid- and high-skill workers to support economic growth underscores the Levy’s importance.

Sectors variations in skill shortages

The Federation of Master Builders (FMB) highlights that the UK construction industry faces significant skill shortages. According to the latest State of Trade surveys, roles such as carpenters, bricklayers, and general labourers are particularly hard to fill, with many builders reporting that these shortages are delaying projects. In the third quarter of 2023, 39% of FMB members struggled to hire carpenters, and 34% faced difficulty in hiring bricklayers.

Similarly, The Nuffield Trust’s 2020 report “Closing the Gap” highlights critical skill shortages within the NHS, especially in nursing and technical healthcare roles. It emphasizes workforce challenges, the need to provide training for healthcare staff to meet growing demands. Skill shortages in general practice, mental health services, and nursing are underscored as having an immediate impact on the delivery and quality of patient care.

Moreover, manufacturing has a growing gap in advanced technical skill set, especially in robotics, and automation where apprenticeship opportunities can boost skill pipelines. However, while some manufacturers have tailored apprenticeship programs to their specific business needs, there are challenges in fully leveraging this initiative. Many manufacturers report an administrative burden, as well as issues with the alignment of training programs to actual business requirements​. 

Additionally, the UK faces a significant skills gap in the tech sector, particularly in areas like coding, cybersecurity, and AI. Initiatives like tech UK’s campaign is trying to bridge this gap by promoting skills bootcamps and fostering digital skills development across various age groups. This initiative can be augmented by expanding apprenticeship programs and offer a pathway to upskill the workforce in the tech sector.

Sectors like Financial and Insurance Activities and Public Administration and Defence face some unique challenges, despite, they are relatively stable and are continuously working to address skills gaps through various initiatives, including apprenticeships. For Financial and Insurance Activities recent reports suggest that there is an ongoing effort to address the skills gap, but the sector remains relatively strong due to high demand and the development of more specialized roles, including those in fintech. For Public Administration and Defence, the demand for skilled workers in areas like public policy, and project management remains steady, but it is not as heavily affected by skill shortages as other sectors might be. That said, targeted apprenticeships still play an important role in maintaining a skilled workforce for the long term. 

Apprenticeship demand

Using Adzuna’s Intelligence Portal we estimate the growth in the demand for apprenticeships. The graph below shows a proportion of apprenticeship demand postings out of total demand postings by industry for 2018-19 (year after apprenticeship levy came into force) and 2023-24 last financial year. There is a significant drop of 82% in Arts, Entertainment, and Recreation, can likely be explained by funding cuts and the impact of COVID-19 on this sector’s viability for apprenticeship programs. Moreover, a decline of 70% in Wholesale, and Retail Trade could reflect broader economic shifts, or the impact of the levy disfavouring smaller businesses in this sector. Lastly, a decline of 57% in Administrative and Support Services may highlight reduced emphasis on lower-skill apprenticeship roles, which are common in this sector. 

With 0.48% of postings dedicated to apprenticeships (a massive increase of 420%), Electricity, Gas, Steam, and Air Conditioning Supply sector leads in prioritizing apprenticeships. The surge likely reflects the growing focus on green energy initiatives, infrastructure upgrades, and technical skills required to meet the UK’s energy transition goals. Apprenticeship postings rose from 0.08% to 0.20% in Professional, Scientific, and Technical Activities (156% increase), indicating a stronger focus on upskilling in STEM fields. This aligns with the demand for highly specialized roles in science, research, and technical innovation.

Apprenticeships doubled from 0.18% to 0.36% (103% increase) in Education, reflecting efforts to address teacher shortages and invest in vocational pathways for support staff. Post-pandemic recovery and workforce planning in education have likely driven this trend.

Despite modest apprenticeship shares (0.09% to 0.15% in Financial and Insurance Activities and 0.02% to 0.03% in Human Health and Social Work Activities), both sectors report a 67% increase. In financial services, apprenticeships cater to specialized areas like fintech, risk management, and actuarial science. In healthcare, although demand remains low relative to total postings, apprenticeships are crucial for addressing shortages in nursing and technical roles.

Impact of the Apprenticeship Levy

Sectors with strong demand for skilled labour and large employers, such as utilities, professional services, and education, have shown remarkable growth in apprenticeship postings. The Electricity, Gas, Steam, and Air Conditioning Supply sector experienced an extraordinary 420% increase, reflecting the Levy’s success in driving workforce development within emerging green energy and decarbonization projects. Likewise, Professional, Scientific, and Technical Activities grew by 156%, aligning with the government’s push for STEM skills and higher-level apprenticeships. 

Education saw a 103% increase, underscoring efforts to address teacher shortages and upskill staff, while healthcare also benefited, supported by growing demand for essential roles post-pandemic. Meanwhile, sectors like Financial Services experienced steady gains (67%) as they adapted to a more specialized workforce.

In contrast, industries like Arts and Recreation (-82%) and Wholesale and Retail Trade (-70%) faced sharp declines. Smaller employers in these sectors likely struggled to access Levy funds, and economic shifts compounded by the pandemic may have deprioritized apprenticeship investments. 

Conclusion

While the Apprenticeship Levy has driven growth in high-demand sectors like utilities, education, and professional services, improvements are needed for broader impact. Smaller industries, such as arts and retail, face barriers like administrative complexity and funding limitations. Addressing these challenges through streamlined processes, targeted support, and sector-specific flexibility would better align the levy with evolving workforce needs.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.