Skills England has warned that England’s priority growth sectors will need up to 1.8 million additional workers over the next decade, as demand for key occupations rises and employers struggle to match skills supply with economic need.
The organisation’s first Annual Skills Report says demand across priority sectors is expected to grow by around 24% over the next ten years. The report draws on sectoral skills needs assessments covering ten areas considered critical to growth, including digital and technologies, clean energy, advanced manufacturing, construction, health and social care, life sciences, defence, financial services, professional and business services, and the creative industries.
Five challenges dominate the report: addressing skills shortages, increasing employer investment, responding to rapid AI adoption, supporting young people’s employability, and building a more responsive place-based skills system.
Demand for key occupations will grow by nearly 25% over the next decade, making reskilling and upskilling a central part of economic planning. Skills England said the mix of apprenticeships and technical education will need to be reviewed and reshaped so provision is more closely aligned with labour market priorities.
Employer investment in training has also weakened over the long term. Smaller businesses are identified as particularly likely to struggle with the skills system, often needing shorter, more responsive training options and clearer returns on investment. Skills England said it will use data, AI-enabled insight, and a new expert network to adapt training provision more quickly.
The findings land days after Alan Milburn’s interim report into young people and work warned that nearly one million 16 to 24-year-olds are not in education, employment or training. Skills England said the number could rise to 1.25 million over the next few years, while employers continue to report gaps in work-readiness.
Phil Smith, chair of Skills England, said: “We must urgently address the skills gaps holding people and businesses back.”
Regional evidence points in the same direction. Research on skills shortages curbing Yorkshire mid-market growth found similar pressure across the Midlands, South East, and South West, with recruitment gaps already restricting expansion plans. That pattern reflects one of the central themes in the Skills England report: national growth targets will not be delivered unless local systems connect employers, training providers, and workers more effectively.
AI adds a further layer of uncertainty. Skills England said the technology will affect almost every job and sector, although the pace of change and the future skills requirements remain hard to predict. Its response will include defining and embedding core AI skills in technical education, so the workforce is better equipped to adopt new technologies at pace.
Workforce planning is likely to become more complex during the second half of the decade. Employers are already being asked to raise productivity while controlling payroll costs, digitising operations, and preparing for occupational change. If AI adoption reduces some entry-level work while increasing demand for higher-skilled roles, the labour market could face fewer traditional routes into employment and greater competition for people able to use, govern, and adapt intelligent systems.
Employability has also moved back to the centre of skills policy. Skills England said it will work with partners including Youth Employment UK to improve how employability skills are recognised and valued by employers, alongside supporting higher-quality work experience. The focus reflects a recurring problem on both sides of the labour market: young people can find pathways into work unclear, while employers often say applicants lack the practical behaviours, confidence, and communication skills needed to succeed quickly in role.
Training is no longer easily treated as a discretionary cost. Capability development is becoming tied to industrial strategy, regional productivity, and technology adoption. In sectors facing rapid demand growth, recruitment alone will not close the gap. Internal progression routes, early careers pathways, and closer collaboration with colleges, universities, local authorities, and industry bodies will all become more important.
The place-based element may prove decisive. Skills England said local systems need better data and insight to shape provision, with Strategic Authorities and other partners connecting people to jobs more effectively. Major projects will also be supported through the Skills England Investment and Infrastructure Service, which is intended to help businesses secure the skilled workforce needed to deliver investment.
The report frames the skills challenge as a national economic constraint rather than a narrow education issue. If demand in priority sectors rises as expected, the ability to train, retain, and redeploy workers will help determine whether industrial policy translates into growth. Without a stronger pipeline, high-potential sectors risk competing for the same limited talent rather than expanding the workforce needed to support them.
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