Britain has an AI strategy, a skills strategy and an investment pitch, but the picture is less settled than ministers would like to suggest. Recently, OpenAI paused its main UK data-centre project in April over high energy costs and what Reuters described as an unfavourable regulatory environment, a reminder that ambition and delivery are not the same thing. The wider UK-US technology relationship has also been less straightforward than the headlines first implied: a major bilateral tech pact was announced last year, then stalled before talks restarted this year.
That matters because the government is asking the country to believe two things at once: that Britain can attract large-scale AI investment and that it can adapt its workforce quickly enough to live with the consequences. It has a plan for the first part – a plan is good, but execution may be a significant challenge as shown with OpenAI’s in-out investment messaging. However, it does not yet have a convincing tax plan for the second and this is a problem.
The government’s own January 2026 labour-market assessment is careful, but it is not comforting. It says the evidence still does not answer many of the biggest policy questions. It also says UK job postings in more AI-exposed occupations have shown signs of decline, with a one standard deviation rise in AI exposure associated with a 3.9% reduction in posting volume during the period studied, even though postings later returned to earlier levels.
That does not prove an employment collapse is under way, indeed unemployment fell to 4.9% in the three months to February, the Office for National Statistics said, defying expectations that it would hold at 5.2% - a blip attributed to students going back to university. It does show, however, that the labour-market effects are real enough to justify something more serious than cheerful talk about productivity. A recent BBC interview with former prime minister Rishi Sunak sharpened the argument.
His point was not simply that AI may flatten hiring in law, accountancy, creative work and other service sectors. It was that the tax system still leans heavily on employment even as technology makes it easier for firms to expand output without increasing headcount at the old rate. His suggested answer was to abolish National Insurance over time and shift more of the burden towards corporate profits that rise with AI-driven productivity.
Whether or not that exact prescription is right, the underlying question is hard to avoid: if labour becomes a smaller share of how businesses create value, can the tax base remain tied so heavily to labour? The government has not answered that question in a serious way. The official emphasis is still on diffusion and reskilling.
The current strategy is easy enough to describe. The government says it wants Britain to become both a major AI maker and a major AI user. The AI Opportunities Action Plan and its January 2026 update focus on compute capacity, adoption across the economy, public-sector deployment and workforce readiness.
The flagship labour response is AI Skills Boost, which aims to upskill 10 million workers by 2030, alongside broader work on AI foundation skills, curriculum reform and place-based programmes such as TechLocal. That is not trivial, you could argue that it’s ambitious. It may help some of the labour market adapt more quickly than pessimists expect.
But it is still largely a labour-supply answer to what may also become a tax-base problem. If AI and robotics allow employers to hold headcount flat while lifting output, the state risks losing labour-linked tax revenue at the same time as unemployment, retraining costs, welfare spending and wider regional adjustment pressures begin to rise. Once that starts to happen, the issue is no longer just productivity.
It becomes a question of tax receipts, welfare costs and who carries the bill for adjustment. There is another reason this matters now. Britain has recently made employing people more expensive, not less.
Since April 2025, the employer Secondary Class 1 National Insurance rate has been 15% rather than 13.8%, and the secondary threshold was cut to £5,000 from £9,100. Ministers softened that move by raising the Employment Allowance to £10,500 and removing the old £100,000 eligibility cap, which helped many smaller employers. Even so, the broad direction is obvious.
The tax system continues to place a direct charge on payroll while placing no equivalent charge on a machine, model or workflow that replaces part of that payroll. That may be defensible if automation quickly creates matching new jobs and fresh tax receipts elsewhere. It looks less secure if hiring at the bottom and middle of some professions starts to thin out while profits and productivity gains are concentrated higher up the corporate chain.
This is where the debate is often mishandled. A crude “robot tax” sounds simple, but simple is not the same as sensible. Taxing every machine that substitutes