Skills in 2026

Could 2026 be the year that the UK finally starts to get to grips with its manufacturing skills gap?

Read time: 7 mins  Added: 25/08/26

Two apprentices at the mtc around a workbench with a teacher

Is the tide turning?

The issue is well understood; manufacturers are struggling to attract and retain talent as the sector faces increasing competition from other sectors, and it is acting as a barrier to growth.

However, progress has been slow. According to Make UK, the sector has 50,000 vacancies1. This is at a time when almost a million young people aged 16-24 are out of work, education or training2.

A separate earlier study by the Department for Education reported that a third (34%) of unfilled manufacturing roles are classed as skill-shortage vacancies; positions that remain unfilled because of a lack of skills, qualifications or experience among applicants3. 

And it’s a particular issue when it comes to the kind of digital skills required as manufacturers race to adopt advanced technologies including Artificial Intelligence, automation and manage cyber risks.

Strategic support

In November 2025, we marked a major 10-year anniversary milestone in our long-term strategic partnership with MTC (Manufacturing Technology Centre), which works to foster skills for the advanced manufacturing sector.

Lloyds’ support has helped develop MTC’s Apprentice Support Service Programme, which provides a dedicated service to help SME manufacturers to recruit apprentices and access salary support funding.

The recent announcement of MTC Training Tyneside, opening in 2026 marks an exciting next step in this continued journey, and in recognition of the collaborations growing impact, we've extended our support from £15m to over £18.5m through to the end of 2029.

From September 2026, the new centre will start delivering Level 3 and Level 4 apprenticeship programmes, with an initial 48 apprentices joining its first intake. Planned advanced manufacturing programmes include Level 3 Mechatronics Maintenance Technician, and Engineering Fitter.

The opening of MTC Tyneside is fantastic news for the North East. Manufacturing is one of the region's greatest strengths, and to realise its growth potential, businesses need access to the skills and expertise that will help them stay competitive, adopt new technologies and grow with confidence. This new centre will equip future engineers with vital skills and hands-on experience, while giving manufacturers access to advanced manufacturing insight and a strong pipeline of local talent. It's an important investment in the region's long-term economic future and we're excited to see the impact it will have.

Martyn Kendrick Regional Director for the North East, Lloyds

The evolving apprentice opportunity

 

The Apprenticeship Levy underwent some welcome reform in the last budget, which comes into effect from April this year.

It’s a relatively complex scheme, so to recap, the Levy is a tax paid by all employers with an annual wage bill of more than £3 million per year, who are required to pay 0.5% of their payroll each month. That money is then ringfenced to pay for apprenticeship training.

The employer paying the Levy can either use the cash themselves to train their apprentices, or they can transfer up to 50% of the fund to firms in their supply chains that don’t pay the Levy, to upskill existing employees or hire new apprentices.

Before the reforms announced by the Chancellor, the Levy could be held for two years before it expired, and the money was reclaimed by the Government. That has now been reduced to one year.

At the same time, while non-Levy-paying SME employers previously had to contribute 5% of training costs, with the Levy funding the remaining 95%, that employer contribution will be removed entirely. It means SMEs employing apprentices aged under 25 will now have their training costs completely covered by the Government, though they will still have to pay their wages.

This comes on top of the £1,000 Apprenticeship Incentive paid to SMEs for each young apprentice, who will also be exempted from Employers National Insurance contributions for the length of their apprenticeship.

The ambition is that a shorter timeline should help focus minds on making the most of the Levy money - after all, if you don’t use it, you lose it. 

This has the potential to accelerate the scheme’s uptake and get more employers signing up existing staff members and new recruits for apprenticeships. This will only help get more people into the industry sooner and fill that skills gap as quickly as possible.

The evolving apprentice opportunity

The Apprenticeship Levy underwent some welcome reform in the last budget, which comes into effect from April this year.

It’s a relatively complex scheme, so to recap, the Levy is a tax paid by all employers with an annual wage bill of more than £3 million per year, who are required to pay 0.5% of their payroll each month. That money is then ringfenced to pay for apprenticeship training.

The employer paying the Levy can either use the cash themselves to train their apprentices, or they can transfer up to 50% of the fund to firms in their supply chains that don’t pay the Levy, to upskill existing employees or hire new apprentices.

Before the reforms announced by the Chancellor, the Levy could be held for two years before it expired, and the money was reclaimed by the Government. That has now been reduced to one year.

At the same time, while non-Levy-paying SME employers previously had to contribute 5% of training costs, with the Levy funding the remaining 95%, that employer contribution will be removed entirely. It means SMEs employing apprentices aged under 25 will now have their training costs completely covered by the Government, though they will still have to pay their wages.

This comes on top of the £1,000 Apprenticeship Incentive paid to SMEs for each young apprentice, who will also be exempted from Employers National Insurance contributions for the length of their apprenticeship.

The ambition is that a shorter timeline should help focus minds on making the most of the Levy money - after all, if you don’t use it, you lose it. 

This has the potential to accelerate the scheme’s uptake and get more employers signing up existing staff members and new recruits for apprenticeships. This will only help get more people into the industry sooner and fill that skills gap as quickly as possible.

Colleges and collaboration

There are now 44 University Technical Colleges (UTCs) across England, educating over 21,000 students, with a new UTC recently announced for Doncaster. UTCs work closely with employers to provide an education focused on delivering the skills that local growth sectors need.

In addition, The Baker Dearing Educational Trust, the founder of the UTC model, sits at the heart of the UTC network. Working closely with all stakeholders, it provides a one-stop-shop for employers to engage with UTCs nationally and ensures UTCs keep pace to deliver industry-relevant skills that the economy needs.

There’s a big focus on STEM subjects, particularly engineering, and project-based learning, where students aged mainly 14-19 engage with real-world challenges set by employers using industry standard equipment.

Young people spend anywhere from 40% upwards studying practical, technical subjects alongside a core academic curriculum. Crucially, all aspects of the UTC education is linked to the world of work to ensure students have the knowledge, skills and attributes necessary to thrive in the workplace.

Building the manufacturing talent pipeline

UTCs are a natural feeder to manufacturing apprentices; a fifth of year 13 UTC leavers progressed to apprenticeships in 2025. UTCs are working to create a pipeline of inventors, engineers, scientists, and technicians of tomorrow, and they have proved highly adept at partnering with industry to produce work-ready young people with the skills technical businesses need.

And there’s now an exciting proposal to incorporate UTC-type learning in existing schools, with pupils aged 14 given the option to continue with a conventional academic curriculum or move onto a UTC-style technical pathway instead.

Any manufacturer facing challenges could look at the opportunity to join the more than 400 employers who are already collaborating with UTCs. Together, these initiatives combine to give hope that the effort to close the manufacturing skills gap is starting to gather real momentum.

Industry and education are working together to inspire and engage young people with the career opportunities that manufacturing can provide, and that has to be a significant step in the right direction.

You may also be interested in

Working with MTC

Our partnership with MTC helps businesses like yours access the skills and expertise they need to grow. We’ve been working together since 2015 and have extended our collaboration through to the end of 2029, with over £18.5 million in sponsorship.

Skills and expertise

Manufacturing hub

For more tailored guidance for the manufacturing sector visit our specialist support hub.

Visit the Manufacturing hub

1Government launches industrial strategy: MAKE UK'S reaction

2BBC article - Almost one million young people still not in work or education

3Create your own tables on employer skills survey