The Education and Skills Budget Breakdown

Yesterday, John Healey delivered his first Budget as Chancellor. Set against tight fiscal headroom, rising borrowing costs, and the economic effects of the conflict in Iran, it was a modest package of targeted changes and loophole closures, intended to ease cost of living pressures while stabilising the public finances. Critics argued it did not go far enough, with Leader of the Opposition Kemi Badenoch asking “Really? Is that it?”. 

For education and skills, there were no dedicated measures to reduce the number of young people not in education, employment or training (NEET), and no further changes to student finance. However, several announcements carry implications for learners, employers, and the skills pipelines that future growth depends on. 

Cost of Living and the NEET Challenge 

The cost of living is unsurprisingly closely linked to the NEET challenge. Financial pressure affects both the opportunities available to young people and their ability to take them up, from reduced entry-level hiring to travel costs that put work, training and education out of reach. 

The Budget’s main cost of living measures included: 

• Energy: a one-off £100 payment for up to 20 million households in council tax bands A to D in England, the removal of the hydrogen levy, and gas standing charges moved onto the unit rate. 
• Transport: a 16th consecutive freeze on fuel duty, and a rise in the higher mileage rate for people who use their own cars for work from 25p to 30p a mile, which will help high-mileage workers such as care workers and community nurses. 
• Minimum wage: a 3.9% rise in April, supporting low earners including young workers and apprentices. 
• Unpaid carers: a taper replacing the point at which Carer’s Allowance is lost entirely, which could make part-time work more viable for young carers, who are overrepresented in the NEET population. 

These measures offer some relief, but their reach is uneven and few speak directly to the barriers young people face. The transport measures largely support drivers, while young people, particularly those who are NEET, are more reliant on buses and trains. Some employers also argue that higher wage floors may reduce entry-level hiring. The Chancellor acknowledged these limits, noting that government “can never remove completely the cost of living pressures that people feel”. The question is whether help aimed at households and workers will also widen access to work and learning, or whether more direct support is needed. 

Welfare Reform 

Some of that more direct support may come through welfare reform. The Chancellor said the government will bring down the welfare bill “in a Labour way”, with a white paper expected before the end of next year following Alan Milburn’s review of youth employment and Stephen Timms’ review of disability support. 

The impact of reform will depend on whether employment support is in place before any changes to eligibility or entitlement take effect. As our Earning or Learning report highlighted, the welfare bill cannot be reduced sustainably without wraparound investment that enables people to move into jobs that are stable, lasting and well-paid. For young people who are NEET, this includes measures such as careers guidance, training, mental health support, and employers that are willing to offer first opportunities. 

First Jobs and Apprenticeships 

On the employer side, the Budget offered support to sectors that often provide first jobs. The threshold for small business rate relief for retail, hospitality, and leisure firms will rise from £12,000 to £18,000, benefiting 70,000 smaller businesses. These sectors are major sources of entry-level and student work, although firms may use the relief to absorb existing cost pressures rather than to recruit. 

The Budget also reiterated £100m for the Local Apprenticeship Service, first announced at Labour Party conference, which will fund mayors to set up teams matching young people with local employers, including firms that have never taken on an apprentice. The Chancellor has called it a “down payment” on the Milburn review. Alongside this, the government committed to placing local jobs and skills at the heart of its procurement model, with a target of at least 3% for apprenticeships on large government infrastructure and construction projects. Both measures address the employer side of the apprenticeship system, but their scale is modest against almost one million young people who are NEET, and wider constraints on apprenticeship funding, provider capacity, and completion rates remain. These are among the issues our upcoming Skills Commission inquiry into apprenticeships will examine. 

Devolution 

The service’s mayor-led model reflects the Budget’s wider push on devolution. Alongside new “good growth” funds, the Chancellor set out a roadmap in which 20% of business rates revenues will go to mayors from next year, an unspecified share of income tax receipts will follow from 2028, and business rates will be fully retained locally by the end of the decade. As explored at our recent APPG for Skills, Careers and Employment roundtable on mayors and skills devolution, more predictable local revenue could give mayors greater scope to plan skills provision over the longer term. However, areas with weaker tax bases, often those with higher NEET rates, may raise less, and how areas without mayors keep pace remains an open question. 

Investment that Depends on Skills 

Alongside questions about who plans and funds skills provision, the Budget also adds to demand for skills. Its two larger investment commitments, housing and defence, depend on workforces that do not yet exist at the scale required. For housing, new government-backed loans for first-time buyers and a First-Time Buyer ISA, replacing the Lifetime ISA from April 2029, build on existing housebuilding commitments, while £50m to upgrade Leeds College of Building recognises the construction skills challenge. However, a single college investment is limited against wider pressures including an ageing workforce, apprenticeship completion rates, and further education (FE) teaching capacity. 

On defence, the Chancellor confirmed full funding for the Defence Investment Plan, partly through capital prioritisation across Whitehall. Meeting longer-term defence ambitions will require engineering, manufacturing, nuclear and digital skills, drawing on universities’ role in training and innovation, which in turn depends on a financially sustainable higher education sector. Capital prioritisation also raises the question of whether education capital, such as FE and school estates, will be affected, which could undermine the pipelines these investments rely on. 

Conclusion 

The Autumn Budget offers a mixed picture for education and skills. Targeted cost of living support, a continued commitment to apprenticeships and further steps towards devolution provide some grounds for optimism, but there was limited direct action on NEET rates, public transport, and education funding. With the package funded largely through targeted tax rises on landlords, banks and savers, and through closing loopholes, the scale of new money was always likely to be limited. Questions remain about whether it will be enough to match the scale of the challenges facing young people, learners, and the skills system. 

Many of the most significant decisions, including welfare reform, the path for defence spending and departmental settlements, have been left to next year’s spending review. Whether this Budget widens access to work and learning will therefore depend on what follows, including the response to the Milburn review, the welfare white paper, and the spending review itself. Policy Connect will continue to engage with these developments through the Skills Commission, the Higher Education Commission, and the work of the All-Party Parliamentary Group for Skills, Careers and Employment (APGSCE).  

For more information on the Education and Skills teams upcoming events and research, please contact Rhiannon Tuckett-Jones at  (rhiannon.tuckett-jones@policyconnect.org.uk).