David T
17 Oct 2025
The government is simultaneously betting big on AI transformation while making 5-year fiscal plans based on pre-AI labour market assumptions.
As Chancellor Rachel Reeves prepares tax rises and employment reforms, her fiscal plans appear oblivious to the workforce disruption already underway.
It's like planning a budget for horse-drawn carriages in 1905.
On November 26, Chancellor Rachel Reeves will stand before Parliament to deliver her second budget, announcing what experts predict will be approximately £30 billion in tax increases. The Office for Budget Responsibility will publish detailed forecasts about productivity, employment costs, and economic growth through 2029. And nowhere in these meticulously calculated spreadsheets will you find serious consideration of the technological revolution that could render many of their assumptions obsolete before the ink is dry.
While the Treasury agonizes over the Employment Rights Bill's "probably net negative economic impacts" and an expected £20 billion impact from the OBR's productivity downgrade, an elephant is quietly entering the room: agentic artificial intelligence. (AGI).
The Revolution Already Underway
This isn't science fiction or distant speculation. The government's own AI Opportunities Action Plan acknowledges that "we will very soon see agentic systems - systems that can be given an objective, then reason, plan and act to achieve it." These aren't chatbots that answer questions, they're autonomous systems that can manage complex workflows, make decisions, and execute tasks that currently employ millions.
The numbers are staggering. Research surveying 200 global HR executives found that AI agent adoption is expected to jump 327% over the next two years, leading to productivity gains of 30% and labour cost reductions of 19%, equivalent to $11,064 per employee. More significantly, these executives expect to redeploy nearly a quarter of their workforce to new roles as agentic AI is implemented.
Let that sink in. One in four workers reassigned within two years!
The Policy Disconnect
Here's where it gets surreal. The same government simultaneously pursuing aggressive AI adoption is making multi-year fiscal plans as if the workplace of 2029 will look fundamentally similar to today's.
Chancellor Reeves has announced plans to cut 10,000 civil service jobs, explicitly stating that AI and automation would fill these gaps. Yet the OBR's forecasts driving the £30 billion tax rise are based on traditional employment models, downgrading productivity assumptions while ignoring AI's potential to reverse decades of stagnation.
The Employment Rights Bill exemplifies this disconnect perfectly. The government's impact assessment estimates the bill could cost businesses between £0.9-£5 billion annually —calculations based on current employment structures. But what happens when large swathes of those jobs fundamentally transform or disappear? The government is essentially legislating protections for yesterday's workplace while tomorrow's is already taking shape.
The OBR acknowledged it hasn't incorporated the Employment Rights Bill into forecasts because "there is not yet sufficient detail or clarity about the final policy parameters." If they can't model a piece of legislation working through Parliament, how are they supposed to account for the most disruptive technological shift since the internet?
The Fiscal Time Bomb
The implications for public finances are profound and multifaceted:
Tax Revenue Volatility: If AI drives workforce restructuring at the scale predicted, income tax and National Insurance contributions (which together comprise over 40% of tax revenue) could fluctuate wildly. The government is planning tax policy for an employment landscape that just may not exist.
Welfare System Stress: While 88% of HR chiefs believe redeployment is more cost-effective than external hiring, this transition won't be seamless. Unemployment spikes, demands for retraining programs, and pressure on the welfare system could dwarf current projections.
The Productivity Paradox: The OBR is downgrading productivity forecasts by 0.2 percentage points, requiring £20 billion in tax rises. Yet agentic AI promises the kind of productivity revolution that could make these assumptions laughably pessimistic or render them irrelevant if the gains don't translate to broad-based employment.
Business Investment Mismatch: Companies are being asked to absorb billions in new employment costs just as they're contemplating massive investments in AI that could transform their workforce needs. This creates perverse incentives to accelerate automation rather than invest in human capital.
Not For Want of Awareness
This isn't a case of policymakers being unaware. The UK has positioned itself as an AI leader with the AI Safety Institute and "a proportionate, flexible regulatory approach." The government created a £3.25 billion Transformation Fund and allocated £42 million to Frontier AI Exemplars. The rhetoric is there.
What's missing is integration. The AI strategy exists in one silo, employment policy in another, and fiscal planning in a third. It's as if the Treasury, the Department for Science and Technology, and the OBR are working in parallel universes that never intersect.
The Questions Nobody's Asking
As Reeves prepares her budget statement, Parliament should be demanding answers to questions that aren't even being posed:
What are the fiscal scenarios if 20-30% of jobs transform by 2029?
How do employment tax projections change under different AI adoption rates?
What's the breakeven point where AI productivity gains offset employment tax revenue losses?
Should fiscal policy actively shape AI adoption speed, or just react to it?
What's the plan for funding large-scale workforce transitions?
Research shows that 73% of employees remain unaware of how AI agents will impact their work. It appears the OBR may be in similar territory.
A Budget for Yesterday
The November budget will likely be remembered for its tax rises, spending cuts, and the political battles over who bears the burden. But the real story may be what it doesn't contain: any serious reckoning with the transformation already underway.
The Treasury is working to fill a £30-50 billion fiscal hole using assumptions about work, productivity, and employment that may be obsolete within this parliamentary term. It's fiscal planning for the world of 2020 when we're hurtling toward 2030.
History suggests that governments usually realize they've missed major technological shifts only in hindsight, after the jobs have disappeared, after the social disruption has occurred, after the fiscal assumptions have collapsed. The information is available now. The research exists. The trajectory is clear.
The question is whether anyone in the Treasury is actually reading it?