Skills England 2026: what recruiters need to know

Skills England has published its 2026 Annual Skills Report, setting out where skills demand will be concentrated, how funding and delivery will change, and what government expects from employers and local partners. For recruiters this is not abstract; it will shape skills policy over the coming years.

 

The report is set out in six chapters, which outline what Skills England see as the biggest challenges in skills, and how they plan to address them.

 

The report opens by noting that, despite some economic recovery, a persistent lack of skills is holding back growth. Skill shortages are still higher than before the COVID-19 pandemic, with particular problems in construction, education and manufacturing; and this shortage may worsen. The challenge of the ‘missing middle’ - people qualified at levels 4 and 5 – may particularly hold back growth. Indeed, 2022 analysis by REC estimated that a labour market restricted by skills and labour shortages could cost the UK economy up to £39 billion every year.

The report argues that there has been a long-term decline in UK businesses investing in workforce training and skills, compared with European averages.

Part of this is due to the complexity of navigating the administrative requirements of the skills system and committing to longer programmes. For instance, as the REC has long argued, many employers want greater flexibility in how they can spend the Growth and Skills Levy, because short courses would often meet their needs better than an apprenticeship which may take many months.

While Skills England has developed the first Apprenticeship Units to respond to this need, continued engagement with employers is needed to boost in-work training.

Skills England also acknowledge the need for the skills system to respond more quickly to changes in the economy, including rapid technological advances. Moving towards a more responsive and agile skills system, which is firmly data driven and listens to employers, is a positive step.

For instance, as the report notes, artificial intelligence will continue to revolutionise the labour market. While an estimated 70% of UK workers are in occupations containing tasks that AI could potentially perform or enhance, AI could well create more opportunities than it replaces.

While the future impact of AI is unclear, being able to grasp the opportunities it presents will require strong organisational capability and AI literacy.

The report recommends a focus on ‘no regret’ skills; capabilities that are valuable now, and likely to remain essential as AI adoption grows. Skills England are focusing on closely monitoring AI skills demand and improving the flexibility of the skills system so it can respond quickly to emerging needs.

The report next argues that the increase in rates of youth NEET (not in employment, education, or training) is, in part, driven by an increase in inactivity. This mirrors the findings of the recent interim report on young people and work by former Minister Alan Milburn.

As part of their analysis on youth NEET, Skills England held a series of Youth Employability Summits, which found:

• Young people are developing valuable, employable skills in communication, teamwork, and problem solving through everyday experiences; but these capabilities may go unrecognised because recruiters rely heavily on formal qualifications and paid experience.
• There is a persistent gap between education and the workplace. Many practical and transferable skills - financial literacy, networking, and interview preparation - are left for young people to learn independently.
• Employers noted structural mismatches: while education environments provide clear instructions and frequent feedback, workplaces expect individuals to navigate ambiguity and receive more irregular guidance.
• The need for young people to develop critical judgement when using AI tools was seen as increasingly important.
• Work experience was consistently identified as the most effective way for young people to build and demonstrate employability skills, but only when placements involve real responsibilities and offer flexible, integrated support.

 

The report also notes that regional economies play a vital role in supporting sustainable and inclusive economic growth. However, Skills England note substantial variation across regions with differences in skills, investment and infrastructure influencing local productivity levels.

These disparities suggest that national growth is closely linked to the performance of local economies. Strengthening local capabilities and aligning national and local policy will aim to support more resilient economic growth across the UK.

Skills England is focussing on three priorities for this: supporting investors and infrastructure projects to develop the skilled workforces they need; delivering a more coordinated approach to local skills planning; and strengthening relationships with regional stakeholders across the UK.

Skills England has also published its Skills Needs Assessments. Government departments have identified 150 occupations as ‘priority’ – those that are critical for the delivery of the government’s Industrial Strategy. Digital roles are the occupations most commonly identified as crucial across the ten sectors, but there are many across the workforce. The health sector includes 26 priority occupations, while there are five in adult social care, and 30 in construction.

Overall, the skills system is providing strong routes into these priority occupations. In the most recent year of data, around 230,000 learners were in priority occupations, almost half of those entering employment from the skills system.

 

Most of the job growth in the priority occupations will continue to be filled by high-skilled individuals.

Across all priority occupations, the top technical skill areas are: developing and deploying applications; determining project requirements and plans; and managing organisational and operational records. Construction and digital are two sets of occupations which are likely to see particularly substantial growth over the next ten years.

 

Skills England and their government partners will:

• Support rapid AI upskilling by defining cross‑cutting AI‑adjacent competencies and creating new, employer‑aligned training.
• Simplify employer access to training by streamlining products and reducing administrative barriers for SMEs.
• Work with DfE and DWP to align school‑to‑work pathways, boost apprenticeship starts and increase employer referrals for young people.
• Create a shared employability language, using the UK Standard Skills Classification, so employers can recognise and assess informal skills.
• Improve work experience quality to give young people real responsibility and verifiable skills evidence.
• Drive place‑based delivery by producing local skills assessments and sharing labour‑market data.
• Engage with SMEs to increase employer investment in training through targeted brokerage and practical support.
• Use employer insight to adapt the skills system more quickly to changes in demand.

 

The REC will continue to engage with Skills England and other government partners on building a skills system which is fit for the UK labour market.