Key takeaways
- From 1 August 2026, government fully funds apprenticeship training for all eligible under-25s, plus a new bursary of up to £4,500 per year per household.
- SMEs get up to £8,000 in support for hiring young apprentices, including the £2,000 hiring bonus from October. Target: 50,000 new youth apprenticeships.
- The balancing act for levy payers: more under-25 starts draw your levy account down faster.
- Once that account empties, remaining training moves to co-investment, which rises from 5% to 25% on 1 August. In practice that lands on your over-25s.
- The advantage goes to whoever forecasts properly. Spend projections stop being admin and start being strategy.
The government has announced a serious package for young people, and most of it is genuinely welcome. There is real money on the table here for employers who move on it. There is also one piece of arithmetic worth understanding first, because it decides whether your levy stretches across your whole team or just part of it.
What was actually announced
The announcement from the DWP and DfE on 28 July includes several things that matter directly to employers:
- A new bursary of up to £4,500 per year per household. It targets Universal Credit families where the current system actively discourages apprenticeships. The Social Security Advisory Committee found single parents with a disabled child could lose up to £340 a week in benefits when a young person started an apprenticeship, against an expected apprenticeship salary of £258 a week. That is a real trap, and closing it is a good thing.
- Fully funded apprenticeship training for all eligible under-25s from 1 August 2026.
- Up to £8,000 in support for SMEs hiring young apprentices, and National Insurance relief for apprentices under 25. From October, smaller firms also get the £2,000 hiring bonus.
The bursary and the under-25 training are funded from the £1 billion additional investment in the Growth and Skills Levy announced in May. The stated goal is 50,000 new youth apprenticeships by the end of this Parliament, against a backdrop of more than a million young people NEET, around one in eight in England.
Worth knowing: the Milburn Review found that of young people NEET for less than a year, 65% return to participation the following year. For those NEET more than a year, only 25% do. Early intervention is not a nice-to-have.
The bit worth planning for
Here is the part that will not make the headlines. Credit for raising it goes to David Lockhart-Hawkins, one of our governors, who flagged the second-order effect for levy-paying employers.
The logic runs like this.
- Policy is pushing you towards under-25s. Free training, a bursary, NI relief, hiring bonuses. Entirely rational, and it will work.
- For a levy payer, that training is still drawn against your apprenticeship service account. "Fully funded" means you pay no co-investment, not that the money appears from nowhere.
- So the more under-25s you start, the faster your levy pot empties.
- When it empties, everything else moves to co-investment. And co-investment rises from 5% to 25% for starts from 1 August.
- In practice, "everything else" is your over-25s. Your existing staff, your managers, the people you were upskilling.
The more under-25s you take on, the faster the levy is spent, and an unexpected overspend then lands on the over-25s. Getting effective spend projections right is going to be a real competitive advantage. David Lockhart-Hawkins, Governor, TESS Group
Put crudely: you can be doing exactly what the government wants, hiring young people and training them, and still end up with a 25% bill on training you assumed was covered. Not because anyone misled you, but because two policies interact and nobody modelled the interaction.
A simplified illustration
Take an employer with £100,000 of levy entering their account this year, planning six apprentices at a £9,000 band.
| All over-25s | Four under-25s added | |
|---|---|---|
| Training drawn from levy | £54,000 | £90,000 |
| Levy remaining | £46,000 | £10,000 |
| Headroom for further starts | Comfortable | Nearly gone |
| Risk on the next cohort | Low | 25% co-investment |
Illustrative only, to show the mechanism rather than to model your account. Real figures depend on your inflow, funding bands, start dates and the 12-month expiry rule.
Notice that nothing has gone wrong in the right-hand column. The employer has taken on more young people, exactly as intended, and got the training free. They have simply used up the buffer that used to absorb their over-25 training.
Confirmed: this is now in the funding rules
Updated 12 August 2026
When we first published this we flagged one open question: whether under-25 training for levy payers would still be drawn from the employer's account. We said we would update either way. It has now been answered in the 2026 to 2027 apprenticeship funding rules.
Where a levy payer has insufficient funds, government will fund all training and assessment costs, up to the funding band maximum, for apprentices aged 16 to 24 at the start of their training. For apprentices aged 25 and over, the employer contributes 25%. Non-levy employers get the same full funding for 16 to 24 year olds.
So the balancing act holds, and it is now official rather than inference. Young apprentices are protected at the point your account runs dry. Your over-25s are not. Which means the sequence still matters exactly as described above: under-25 starts draw the account down while funds last, and whatever is left in the pipeline when it empties lands on the 25% rate, disproportionately your older cohorts.
The practical read for a levy payer is slightly better than we first feared and considerably more pointed. There is now a real, quantifiable reason to know when your account empties, because the date decides which of your people get fully funded training and which of them cost you a quarter of the bill.
The mechanism in four steps
- Policy pushes you towards under-25s. Free training, a bursary, NI relief and, for smaller firms, a £2,000 hiring payment.
- Every start still draws on your account while it has funds. Age makes no difference at this stage. More young starts simply empty the pot faster.
- The account runs dry earlier than you planned. That date is the whole game, and almost nobody has calculated it.
- From that date, age decides everything. Your 16 to 24 year olds stay fully funded. Your 25-and-overs move to 25% co-investment.
Taking on more young apprentices does not cost you more for the young apprentices. It costs you more for everybody else, and only after a date you have probably never worked out.
Why forecasting is suddenly a competitive advantage
For years, levy planning was something most employers could afford to do badly. Funds sat for 24 months, co-investment was 5%, and the cost of getting it wrong was small.
Three changes have removed that slack at the same time:
- Expiry halves. Unused funds now expire after 12 months, not 24, so underspending is punished faster.
- Co-investment quintuples. Overspending now costs 25% rather than 5%.
- Under-25 incentives accelerate the burn rate. The behaviour policy is encouraging pulls your account down more quickly.
The gap between underspending and overspending has narrowed to a corridor, and the employers who model it will spend the same money to noticeably better effect than those who do not. As we found in the underspend figures, 54.2% of levy payers currently use a quarter or less of the funds entering their account, so most organisations have never needed this discipline. They are about to.
What a provider should be doing about this
This is where your choice of training partner stops being a procurement exercise and starts being a financial one. Most providers will sell you under-25 starts this autumn because the incentives make them easy to sell. Fewer will tell you what those starts do to the rest of your plan.
Three things we think an employer should expect from a provider right now, and which we build into how we work:
- A projection, not a pitch. Before you commit to a cohort, you should see when your account is forecast to run dry and what that does to your other training. We will do this for you whether or not you buy anything.
- Programmes that serve both populations. The balancing act only resolves if one partner can cover your young entry-level intake and your existing over-25 staff, because that is how you sequence starts sensibly. We run AI Champion at Level 3 for entry cohorts, the AI & Automation Practitioner Level 4 for practitioners of any age, and 30-hour Level 5 AI Leadership units for senior people who cannot take a full apprenticeship.
- Routes on the right side of the reforms. There is no point solving your levy maths on a standard that gets defunded next year. AI and digital sit in the government's priority skills category, which is why our provision is concentrated there rather than in the management standards losing funding in September.
The short units matter more than they look here. If your levy is heading for empty, a 30-hour unit at £750 gets a senior person genuinely capable without committing the funds a full apprenticeship would. That flexibility is a lever most employers do not realise they have.
What this means for you specifically
The mechanism is the same for everyone. What changes is how much it matters.
Large levy payer, account rarely empties
Lowest exposure, but do not assume it stays that way. A push on youth recruitment plus the shorter 12-month expiry window can turn a comfortable account into an empty one inside a year. Model it once, then revisit each quarter.
Mid-size levy payer, account runs close
This is where the money is won or lost. You are close enough to the line that sequencing decides your bill. Get your over-25 training started while funds remain, and treat every additional under-25 start as cost-neutral rather than as competition for the same pot.
Non-levy employer or SME
Simplest position of the three. Apprentices aged 16 to 24 are fully funded, your 25-and-overs attract co-investment, and from October there is a £2,000 hiring payment for eligible young starts. No forecasting required, just make sure someone owns claiming what you are entitled to.
What to do about it
- Build a 12-month projection, not a balance check. Model monthly inflow, planned starts by age band, funding bands, and the month your account would empty.
- Sequence your starts deliberately. If over-25 training matters to you, get it started while the account still has funds.
- Separate the two populations in your plan. Under-25s and over-25s now have genuinely different economics. Planning them as one pot is what creates the surprise.
- Use the incentives properly. The bursary, NI relief and the £2,000 hiring payment reduce the cost of young hires, so make sure someone owns claiming them.
Three questions to ask this week
You can start this without a model. Two emails will tell you most of what you need.
- To your finance or payroll lead: "What is the current balance in our apprenticeship service account, what goes in each month, and what is going out against live cohorts?" That is your run-dry date in three numbers.
- To your training provider: "Of the starts we have planned for the next 12 months, how many are 25 or over, and what would they cost us at 25% co-investment?" If they cannot answer within a day, that is informative in itself.
- To whoever owns recruitment: "Is anything in our hiring plan being held back on training cost that would now be fully funded?" Budget objections written before August may no longer apply.
We will build you a 12-month projection for your own account showing three things:
- The month your levy account runs dry, based on your inflow and live commitments
- Which of your planned starts would land on 25% co-investment, and what that costs
- What changes if you resequence, so you can see the saving before you commit to anything
25 minutes, no obligation, and if the answer is simply "you are fine" we will say so and give you the projection anyway.
Book a levy projection call →Free under-25 training is real money and worth taking. It also empties your levy account faster, and the date it empties decides whether your over-25s are funded or cost you a quarter of the band. Work out that date, then sequence around it.
The honest summary
This is a good announcement. Closing a benefits trap that cost a family £340 a week is the right thing to do, and fully funded training for under-25s will get more young people into work. We are not going to be cynical about that.
But good policy can still produce awkward arithmetic. If you pay the levy, the question to ask this week is not "should we take on more young apprentices", it is "if we do, what happens to everyone else's training in month nine?" The employers who can answer that will get more out of the same levy than the ones who cannot.
That is the work we do with clients every week, and it is the reason we rebuilt this business around AI apprenticeships before the funding landscape forced the issue. Our AI & Automation Practitioner Level 4, the Claude edition of it, and the short AI Leadership units are all funded through the Growth & Skills Levy, cover both age populations, and sit in the priority skills category. Ofsted Good, 4.9 out of 5 from more than 712 learners, and we will tell you when the answer is to do nothing.
Figures are from the DWP and DfE announcement of 28 July 2026 and the accompanying notes. The co-investment and expiry changes are from the published apprenticeship funding rules. The levy interaction described here is analysis, not government guidance, and the illustration is simplified. Confirm your own position before acting.
Frequently asked questions.
What did the government announce on 28 July 2026?
A package of youth apprenticeship and skills support: a new bursary worth up to £4,500 per year per household for Universal Credit families, fully funded apprenticeship training for all eligible under-25s from 1 August 2026, up to £8,000 in support for SMEs hiring young apprentices, National Insurance relief for apprentices under 25. The bursary and under-25 training are funded from the £1 billion additional investment in the Growth and Skills Levy announced in May 2026.
Is apprenticeship training now free for under-25s?
Yes. For eligible apprentices aged 16 to 24 starting from 1 August 2026 there is no employer co-investment, confirmed in the 2026 to 2027 funding rules, and that holds for non-levy employers and for levy payers whose accounts are exhausted. What employers should still watch is the sequencing, because training paid from your apprenticeship service account draws down your levy balance even when you contribute nothing directly.
Why could more under-25 apprentices cost a levy payer more overall?
Because levy funds are finite. Under-25 training is drawn from your apprenticeship service account while funds last, so taking on more young apprentices depletes the account faster. The 2026 to 2027 funding rules confirm that once the account is empty, government fully funds training for apprentices aged 16 to 24, but apprentices aged 25 and over move to co-investment at 25%, up from 5%. The saving on young apprentices can therefore be offset by an unplanned bill on your older cohorts.
How much is the new apprenticeship bursary?
Up to £4,500 per year per household. It targets Universal Credit families where the benefit system currently discourages apprenticeships. The Social Security Advisory Committee found single parents with a disabled child could lose up to £340 per week in benefits when a young person started an apprenticeship, against an expected apprenticeship salary of £258 per week. The final amount will be confirmed in due course.
How should levy-paying employers plan for this?
Build a spend projection rather than reacting month to month. Model your levy inflow, your planned under-25 and over-25 starts, and the point at which the account would empty. That tells you whether any over-25 training will fall into 25% co-investment, and lets you sequence starts to avoid an unplanned bill. With funds now expiring after 12 months instead of 24, timing matters more than it used to.
Does the £2,000 hiring payment still apply?
Yes. From October 2026 smaller firms receive a £2,000 hiring bonus for taking on under-25 apprentices. That sits alongside the wider package of up to £8,000 in support for SMEs hiring young apprentices. Eligibility rules are specific, particularly around levy status and the 90-day prior-employment window.
Sources
DWP and DfE, Government invests in young people with more opportunities close to home (28 July 2026), including the Social Security Advisory Committee and Milburn Review figures cited in the notes. Co-investment and expiry changes: apprenticeship funding rules. The levy interaction analysis was raised by David Lockhart-Hawkins.