What England’s first Annual Skills Report reveals

England’s first Annual Skills Report reveals a persistent skills shortage, with decreasing employer investment in training.

A persistent skills shortage, decreasing employer investment in training and a skills system that is not agile enough to cope with rapid technological change are some of the findings outlined in the 2026 Annual Skills Report for England.

With nearly one million young people not in education, employment or training (NEET), the report emphasises that “better skills for better jobs” must be the principle of a new “working state”.

Five challenges

The report identifies five core challenges for 2026 onwards.

Skills shortages remain stubbornly high, with more than a quarter of vacancies hard to fill due to lack of skills, particularly in construction, education and manufacturing. Yet, demand for key occupations is set to rise by almost a quarter by 2035, adding 1.8 million jobs, with especially strong growth in digital, engineering and construction.
Employer investment in training has declined over time. Between 2019 and 2024, total business investment in training in England fell by 9%, and spending per employee by 13%.
AI is rapidly reshaping skills needs across all sectors. The report says that the challenge is not just producing more AI specialists, but ensuring all workers have cross‑cutting capabilities – communication, critical thinking, analytical skills – to use AI confidently and responsibly.
Youth employability is a major concern, with youth unemployment at 16.1% at the end of 2025, the highest since 2015, and young people from disadvantaged backgrounds more than twice as likely to be NEET.
The skills system needs place‑based planning and better local data to match training to local labour market needs. Regional differences in productivity, investment and skills mean a one‑size‑fits‑all national approach will not work.

What Skills England is doing

Skills England is working on several initiatives, including aligning apprenticeships, technical education and vocational qualifications with labour market demand and the Industrial Strategy’s priority sectors.

It is also looking at the neglected area of Level 4 and 5 qualifications (higher technical skills) and where it can improve access to higher technical pathways and demonstrate their value to employers and young people.

And, alongside this, it is defining the AI skills that apply across multiple sectors and embedding them into training, as well as developing new provision such as a Level 4 AI and Automation practitioner apprenticeship.

The bigger picture

A £2.5 billion package covering three years aims to support almost one million young people and create up to 500,000 earn‑and‑learn opportunities – and there will be a focus on being more employer‑led, evidence‑driven and local.