Funded by the Nuffield Foundation
Adult education and skills encompasses a wide range of courses and learners, spanning different levels, modes of delivery and policy objectives. Unlike for 16–18 education, it is therefore not meaningful to analyse spending on a per-learner basis, given the diversity of provision and the variation in course length, intensity and funding arrangements. Instead, we show trends in total public spending, which we group into three broad categories:
- classroom-based learning, including basic skills and qualifications at multiple levels;
- subsidies for work-based learning, such as apprenticeships;
- loans for further education courses, known as advanced learner loans.
Adult education spending over time
Figure 1 shows public spending across these three categories from the early 2000s to the present, alongside projections for 2025–26. Overall public funding for adult education and skills has declined substantially since its peak in the early 2000s. In 2024–25, spending stood at around £4.7 billion, around 30% below its inflation-adjusted high of £6.8 billion in 2003–04. This decline has been driven primarily by large reductions in classroom-based learning, where expenditure has fallen by around two-thirds, from £5.3 billion in the early 2000s to £1.8 billion in 2024–25. By contrast, public funding for work-based learning has risen markedly over the same period, reaching around £2.8 billion today and now consisting almost entirely of subsidies for apprenticeships.
These trends reflect both a long-running retrenchment in entitlements to low-level classroom-based learning and a gradual reorientation of adult skills funding towards work-based provision. During the 2000s, some of the reductions in classroom-based funding were offset by increased support for work-based learning, leaving overall spending relatively stable. Expenditure on work-based learning reached a peak of around £3 billion in 2009–10 following the introduction of the Train to Gain programme.1 In the 2010s, spending on work-based learning settled at just over £2 billion annually (in today’s prices) as funding for classroom-based learning continued to decline. Since 2020, public spending on apprenticeships has risen again, reaching around £2.8 billion in 2024–25 and projected to increase to £3 billion in 2025–26. Advanced learner loans, introduced in 2013–14, have consistently accounted for only a small share of total adult skills funding. By 2024–25, approximately £90 million was issued through these loans, making up just 2% of the overall skills budget.
Looking ahead, the Spending Review implies a real-terms increase of just over £300 million in total funding for further education and skills between 2025–26 and 2028–29, but leaves open how this funding will be distributed across the system. If the government chooses to maintain spending per student in 16–18 education at its 2026–27 level in real terms, much of this additional funding would be absorbed by rising student numbers, limiting the scope for increases in spending elsewhere. Alongside this, the Autumn Budget announced £725 million in additional cash-terms funding for the growth and skills levy over the Spending Review period. While the precise timing of this extra funding has not been set out, an even profile would imply a real-terms increase of around £50 million in the total apprenticeship budget in 2028–29 relative to 2025–26. Taken together, if the government maintains real-terms spending per student in 16–18 education at its 2026–27 level and the additional growth and skills levy funding is spread evenly over the Spending Review period, public spending on adult education and skills in 2028–29 would be broadly flat in real terms compared with 2025–26.
Public funding for classroom-based learning
There have been large and sustained reductions in public spending on classroom-based adult learning over time driven by two main factors. The first is a sharp decline in participation. As shown in Figure 2, the number of publicly funded classroom-based further education courses taken by adults in England fell from 5.4 million in 2004–05 to just 1.7 million in 2024–25, a reduction of around 70%. While participation has declined across all course levels, the largest falls occurred at the lowest levels (below level 2, which corresponds to study below GCSE level), particularly during the 2000s. Declining participation has had direct implications for funding for colleges and other providers, since funding is largely determined by the number of courses delivered.
The fall in the number of classroom-based learners reflects a series of policy decisions over time, including the withdrawal of public funding for some low-level qualifications in the 2000s, a shift in emphasis towards apprenticeship-based training, and tighter eligibility criteria for funding entitlements introduced during the 2010s. The implications of this decline depend on which types of courses have been reduced. Evidence suggests that labour market returns vary substantially across further education qualifications, with many low-level classroom-based courses associated with relatively limited earnings gains (Tahir, 2023).
A second driver of the decline in public spending on classroom-based adult learning has been a substantial reduction in funding rates in real terms. Funding for adult education delivered by further education providers is allocated through a formula that incorporates a course funding rate, a disadvantage uplift and an area cost uplift, reflecting differences in learner characteristics and regional cost pressures. Since 2013–14, the Education and Skills Funding Agency has used the following formula to allocate funding through the Adult Skills Fund:
The course funding rate – based on the number of guided learning hours and the subject area – is the most important component of this formula. Since at least 2013–14, funding rates for most adult education courses have largely been held constant in cash terms. Although there have been uplifts to formula-funded provision under the Adult Skills Fund in recent years, this has not offset the cumulative effect of the prolonged cash-terms freeze.
Figure 3 illustrates how funding rates for a selection of the most commonly taken classroom-based courses have changed in real terms since 2013–14. The government increased the funding rate for GCSE English and maths in 2015–16, after which providers received a fixed cash-terms payment of £811 per student for teaching these courses between 2015–16 and 2023–24. The funding rates for functional skills courses, which are courses in basic English and maths often taken by adults without GCSE passes, have not changed in cash terms in the last decade. As a result, rising inflation has substantially eroded the real value of funding. Between 2013–14 and 2025–26, the real-terms value of programme funding fell by around 15% for GCSE English and maths courses and by around 29% for functional skills courses.
Funding rates for classroom-based adult education have been held constant in cash terms for a prolonged period. Using cash-terms freezes as the primary mechanism for setting funding levels is unlikely to be good policy, as it offers little assurance that funding remains aligned with delivery costs as these evolve over time. With responsibility for this area of spending now transferred to the Department for Work and Pensions, future funding trends will depend on whether and how funding rates are reviewed under these new arrangements.
Public funding for apprenticeships
Alongside classroom-based adult education, apprenticeships account for a substantial share of public spending on adult skills, but are funded through a distinct institutional and financial framework – the apprenticeship levy. The levy has been a central feature of England’s skills system since its introduction in 2017. Large employers – those with annual paybills above £3 million – pay a tax of 0.5% on their paybill above this threshold. In England, the funds from this levy can be used by all employers (both those that pay the levy and those that do not) to subsidise the training and assessment costs of apprentices.
Despite the name, the apprenticeship levy is not a hypothecated tax where the revenue collected goes directly into a separate fund dedicated solely to apprenticeships. Instead, the Treasury sets an apprenticeship budget in England. While the revenue from the levy is an important factor in setting the apprenticeship budget, other considerations such as broader policy objectives can also play a part. The devolved governments of Scotland, Wales and Northern Ireland receive a corresponding amount via the Barnett formula. The level of allocated funding can be, and has been, different from the amount of money raised through the apprenticeship levy.
Figure 4 shows the revenue generated by the apprenticeship levy, the funds allocated to England’s apprenticeship budget and the amount allocated to devolved nations, as well as the actual expenditure from England’s apprenticeship budget.
In the early years of the apprenticeship levy, levy receipts were broadly in line with the funding allocated for apprenticeships (the sum of the apprenticeship budget in England and transfers to the devolved nations). Since 2021–22, however, levy revenues have grown faster than the apprenticeship budget, with the surplus rising from around £345 million in 2021–22 to almost £840 million in 2024–25. At the same time, the gap between the apprenticeship budget in England and funds spent in England has narrowed. In the first four years of the levy, only around 75–80% of the allocated budget was spent each year. More recently, spending has been close to the budget, with the spending and the allocated budget almost identical in the latest year. As a result, while the gap between levy revenues and the apprenticeship budget has widened, the earlier pattern of underspends against the budget has largely disappeared.
The basic structure of the levy has remained unchanged since 2017, but successive governments have made incremental adjustments, and suggestions have been raised about whether the system should allow employers to subsidise a broader set of training options (Tahir, 2023). Prior to the election, the Labour Party set out proposals to broaden the levy into a ‘growth and skills levy’, enabling employers to use up to 50% of their contributions to fund approved non-apprenticeship training (Farquharson, Sibieta and Tahir, 2024). The intention was to address underinvestment in training that is not currently eligible for support. But widening the scope of subsidised training also brings challenges, including the risk of deadweight – funding activity that would have taken place anyway – and the need for quality assurance across a more diverse set of courses.
Since taking office, the government has begun to make changes to the levy system, though the steps taken up until now have focused on controlling costs rather than widening flexibility. Shortly after the election, the Department for Education announced that levy funds could no longer be used to support level 7 (equivalent to master’s level) apprenticeships for adults aged 22 and over. This change reflects mounting pressure on the apprenticeship budget. Figure 5 shows that spending on higher-level apprenticeships (level 4 and above) has risen from 13% of total spending in 2017–18 to 42% in 2023–24, and level 7 programmes alone increased from 1% to nearly 10% over the same period. These apprenticeships are predominantly taken up by adults who already hold degrees, with 74% of higher-level (level 4 and above) starts in 2024–25 by individuals aged 25 and over. This shift has placed a growing strain on the apprenticeship budget, particularly because higher-level apprenticeships tend to be longer and more expensive.
The recent Post-16 Education and Skills White Paper provided some indication of how the apprenticeship levy is intended to evolve into a growth and skills levy. From April 2026, employers will ‘be able to use the levy on short, flexible training courses’. These courses will take the form of ‘apprenticeship units’ and will be available in a set of designated critical skills areas. However, significant details on how apprenticeship units will be defined, approved or delivered remain unclear, which is concerning given that the planned introduction date is extremely close.
In addition, by restricting eligibility to courses in designated critical skills areas, the government appears to be moving towards a narrower model than the broader flexibility proposed prior to the election. There are clear rationales for targeting public subsidy towards regulated, high-quality provision in areas of identified labour market need. However, many employers also invest in training that falls outside these categories, and tighter eligibility may limit the extent to which the levy supports wider workforce development. The challenge for the government will be to balance flexibility, cost control and the targeting of public funds towards training with demonstrable economic value.
Further education loans
Alongside grant-based funding for classroom-based provision and levy-funded apprenticeships, the government also supports adult participation in further education through income-contingent loans. These are provided through advanced learner loans, which fund tuition costs for eligible further education courses (between level 3 and level 6). Spending on further education loans is small relative to other parts of the post-18 finance system. In the 2024–25 financial year, the amount lent through advanced learner loans (£80 million in cash terms) accounted for 0.4% of the total value of higher education loans issued (£20.6 billion).
Despite their relatively modest scale, further education loans play a distinct role within the adult skills system and have been subject to a number of policy changes over time. The system is now set to be reformed through the introduction of the Lifelong Learning Entitlement (LLE), which represents a significant change in how post-18 education is financed. First announced in 2020, the first LLE-funded courses are expected to open for applications in September 2026.
The Lifelong Learning Entitlement can be viewed as a package of three closely related reforms to the post-18 loan system (Tahir, 2023). First, it will integrate the two existing loan schemes – higher education student loans and advanced learner loans – into a single system, replacing what is currently a fragmented set of arrangements. Second, it will remove the ‘equivalent or lower qualification’ (ELQ) restriction, allowing adults to access loan funding for courses at the same level as or lower than a qualification they already hold. Third, it will introduce modular funding, enabling learners to take out loans for individual modules or short courses rather than only for full qualifications. Eligible learners will have access to their full entitlement from age 18, while existing adult learners will transition onto the new system with a residual entitlement reflecting previous loan use. At least initially, however, modular funding will be available only for subject areas aligned with priority skills needs under the government’s Industrial Strategy.
In principle, removing ELQ restrictions and extending loan funding to modular study at levels 4–6 could make it easier for adults to retrain or update their skills. Whether this occurs in practice will depend on both learner demand and provider participation. On the demand side, there is considerable uncertainty about the extent of unmet demand for modular learning and the degree to which access to loan funding represents a binding constraint. Evidence from the Learning and Work Institute’s Adult Participation in Learning Survey shows that the share of adults citing cost as a barrier to learning rose from 8% in 2019 to 24% in 2025 (Phipps et al., 2025). However, adults also report a range of non-financial barriers, including time constraints, work or caring responsibilities, low confidence, feeling ‘too old’ or difficulty identifying suitable courses. Expanding loan eligibility alone is unlikely to address these wider constraints on participation.
Access to loans may also be insufficient if learners lack clear information about the likely returns to modular study. While there is extensive evidence on the labour market returns to full qualifications – particularly degrees – there is very limited evidence on the value of short courses or ‘micro-credentials’. A recent OECD review concludes that there is ‘very limited evidence’ on the value of such courses ‘to learners and the wider society’ (OECD, 2021, p. 31). In the absence of clear information on returns, some learners may be reluctant to take on debt for modular provision. Early evidence from the Office for Students’s short-course trial in 2022–23 illustrates this challenge: although around 2,000 enrolments were expected, only 125 learners ultimately enrolled (Office for Students, 2024). This suggests that achieving meaningful scale under the Lifelong Learning Entitlement will require effective communication and promotion, alongside the availability of suitable provision.
The incentives facing providers are also uncertain. Even where modular courses could be derived from existing degree programmes, delivering them as standalone units can be costly. Providers may need to invest in new systems for credit accumulation and transfer, additional quality assurance processes, and redesigned curricula originally structured around longer programmes. These requirements mean that the supply of modular provision may expand only gradually, potentially limiting learner choice in the early years of the Lifelong Learning Entitlement. The take-up and delivery of modular provision as the Lifelong Learning Entitlement is introduced will therefore be an important area for close attention over the coming years.
References
Drayton, E., Farquharson, C., Ogden, K., Sibieta, L., Tahir, I. and Waltmann, B., 2022. Annual report on education spending in England: 2022. IFS Report, https://ifs.org.uk/publications/annual-report-education-spending-england-2022.
Farquharson, C., Sibieta, L. and Tahir, I., 2024. Labour’s ‘Growth and Skills’ levy would give more flexibility to firms – but employers would still need to get on board. IFS Comment, https://ifs.org.uk/articles/labours-growth-and-skills-levy-would-give-more-flexibility-firms-employers-would-still.
HM Treasury, 2016. UK government agrees apprenticeship levy funding deal with devolved administrations. Press Release, https://www.gov.uk/government/news/uk-government-agrees-apprenticeship-levy-funding-deal-with-devolved-administrations.
OECD, 2021. Micro-credential innovations in higher education: who, what and why? OECD Education Policy Perspectives 39, https://doi.org/10.1787/f14ef041-en.
Office for Students, 2024. Evaluation of the Higher Education Short Course trial. https://www.officeforstudents.org.uk/media/nlhjy3pm/evaluation-of-the-higher-education-short-course-trial.pdf.
Phipps, B., Nermond, O., Revel, A., Egglestone, C., Jones, E. and Evans, S., 2025. The workforce learning slowdown? Adult Participation in Learning Survey 2025. Learning and Work Institute, https://learningandwork.org.uk/resources/research-and-reports/adult-participation-in-learning-survey-2025/.
Tahir, I., 2023. Investment in training and skills. IFS Green Budget 2023, https://ifs.org.uk/publications/investment-training-and-skills.
