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Half of UK businesses plan to prioritise investment in artificial intelligence over hiring because of chancellor Rachel Reeves’ decision to increase employers’ tax bills, according to a new poll.
A total of 51 per cent of UK business leaders said they planned to “redirect investment from staff to AI” as a result of an increase in employers’ national insurance contributions announced in the October Budget, according to a survey commissioned by Boston Consulting Group shared with the Financial Times.
“People are starting to see, with AI and generative AI, the potential of those technologies to be more productive . . . in a world where the costs of employment are increasing,” said BCG managing director and partner Nick South.
“Over time you will see organisations reshaping the size and shape of their workforces.”
Companies have warned of billions of pounds in costs from Reeves’ move to increase the rate of employers’ national insurance contributions and lower the earnings threshold at which the tax kicks in. Employers are also bracing for an increase in the national living wage.
The Labour government’s planned workers’ rights reforms, including the removal of the qualifying period for protection against unfair dismissal and ending “exploitative” zero-hour contracts, are also expected to increase employers’ costs.
As many as 57 per cent of executives surveyed by BCG said they would hire fewer people in 2025 as a result of the reforms. The poll of leaders at 251 UK businesses with more than 50 employees each found that investing in AI was a priority for 44 per cent of respondents this year.
An executive at one of the UK’s largest employers told the FT that the government was “increasing the costs of employing people in multiple ways simultaneously right at the point when AI cost cutting possibilities emerge”.
“It’s going to accelerate job cuts across the economy, no question,” the executive added.
Digitisation is already affecting hiring. Telecoms group BT announced in 2023 that it would slash up to 55,000 jobs, or 42 per cent of its workforce, by the end of the decade. The FT reported previously that 10,000 of the planned job cuts were because of digitisation and automation.
Klarna chief executive Sebastian Siemiatkowski said in August that AI could help the Swedish buy now, pay later group reduce its number of staff by about half. The company’s headcount fell by more than a fifth to 3,500 last year.
The BCG data follows a series of gloomy economic forecasts for the UK, with recruiters reporting a further slowdown in hiring in December.
The macroeconomic environment, workforce health and the unwinding of over-hiring in the wake of the Covid-19 pandemic have also been highlighted as contributing to the hiring slowdown. Office for National Statistics data published in December showed vacancies had already been declining before the Budget.
Meanwhile the rise of AI has led companies to seek staff with skills related to the technology.
Demand for AI engineers in the UK jumped in the first half of 2024, according to recruitment group Sanderson, despite lay-offs in the wider tech sector over the past 18 months.
“AI will replace some jobs, support some jobs and generate some jobs, it will balance itself out,” said James Corcoran, head of recruitment at Sanderson’s government and defence practice.
A government spokesperson said its “once in a parliament” Budget would “wipe the slate clean” and that the Office for Budget Responsibility had “confirmed that unemployment was set to fall”.
The spokesperson said the government was “enabling business to thrive having stabilised the public finances, capped the rate of corporation tax at the lowest level in the G7, and . . . creating pension mega funds to boost investment in British businesses”.
The Employment Rights Bill would support its “plan to increase productivity by making sure that working people have sufficient wages, security, dignity, and the living standards they deserve”, they added.
