Universities’ ability to tackle the UK’s deepening skills shortages?is being stifled owing to outdated funding structures and excessive bureaucracy, a new report has warned.
The Social Market Foundation (SMF), in a , says ministers must back higher-level vocational training – including degree apprenticeships – if the government is serious about improving health services, boosting housing supply and growing sectors?such as artificial intelligence and green technology.
The report was published ahead of Labour’s highly anticipated Post-16 Education and Skills Strategy White Paper, which is expected to set out the government’s approach to higher education reform.
Universities are currently being excluded from key parts of the system, the SMF paper says.
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Higher-level apprenticeships – typically degree-level programmes that combine paid work with part-time university study – have grown in popularity since their introduction in 2015.
But the report notes that demand still far outstrips supply, with more than 500,000 vacancies across the UK in sectors that require advanced skills.
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“Universities face a funding system that doesn’t reward this kind of provision, and layers of bureaucracy that actively make it harder to deliver,” said Dani Payne, head of education and social mobility at SMF.
“For the many universities that are willing to become providers, the system isn’t working with them.”
The current funding model, the report argues, prioritises traditional degrees and research, offering little incentive for universities to expand vocational routes.
Recent cuts to funding for level 7 (master’s) apprenticeships?– including?their removal for most adult learners – have further undermined provision, despite employer and student demand.
The report calls for an overhaul of funding bands to keep pace with inflation and ensure quality delivery.
It also urges a simplification of regulation, noting that apprenticeship providers currently face dual oversight from both the Office for Students and Ofsted.
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Meanwhile, some universities themselves are described as slow to adapt, with older or higher-tariff institutions still prioritising academic prestige over vocational provision.
That resistance risks leaving the sector fragmented and poorly equipped to respond to the government’s wider economic goals, the SMF argues.
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The thinktank also criticises the absence of universities in local and national skills planning – a gap it warns could jeopardise the success of new bodies such as Skills England, set up to align training with economic needs.
Vanessa Wilson, chief executive of the University Alliance, which sponsored the report, said it underlines the “crucial” role universities play in delivering high-level technical education – and the barriers preventing them from scaling up.
“Alliance universities teach high-level skills in sectors like healthcare and construction,” she said.
“But they are being hamstrung by bureaucratic overload, financial disincentives and a shifting policy and funding landscape. Without a balanced approach across all levels and ages, government will struggle to build a skilled, adaptable workforce.”
Labour’s decisions in the year since taking office have already raised concerns in the sector.
Recent analysis from Universities UK estimates that English universities will face a ?1.4 billion hit in 2025-26?because of a combination of policy changes, including cuts to teaching grants and the removal of level 7 apprenticeship funding.
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“If the government wants to deliver on its missions – including economic growth – it needs to unlock the full potential of our higher education institutions,” Payne said.
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