British companies plan to invest in artificial intelligence instead of hiring staff as costs rise

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Half of UK businesses plan to prioritize investment in artificial intelligence over recruitment because of Chancellor Rachel Reeves’ decision to increase employers’ tax bills, according to a new poll.

A total of 51 percent of UK business leaders said they plan to “shift investment from staff to artificial intelligence” as a result of the increase in employers’ National Insurance contributions announced in October’s budget, according to a survey commissioned by the Boston Consulting Group and shared with the Financial Times.

“People are starting to see, with AI and generative AI, the potential of these technologies to be more productive. . . in a world where employment costs are rising,” said BCG director and partner Nick South.

“Over time, you will see organizations reshaping the size and shape of their workforce.”

Companies have warned of billions of pounds in costs as a result of Reeves’ move to increase employers’ National Insurance contribution rates and lower the earnings threshold at which tax kicks in. Employers are also gearing up for an increase in the country’s living wage.

Reforms to workers’ rights planned by the Labor government, including the abolition of the qualifying period for protection against unfair dismissal and the abolition of “exploitative” no-hours contracts, are also expected to increase costs for employers.

As many as 57 percent of executives surveyed by BCG said they will hire fewer people in 2025 as a result of the reforms. A survey of executives from 251 UK companies with more than 50 employees found that investing in AI is a priority for 44 percent of respondents this year.

The chief executive of one of the UK’s biggest employers told the FT that the government was “increasing the cost of employing people in a number of ways at the same time as the cost-cutting opportunities of artificial intelligence are emerging”.

“It will accelerate job cuts across the economy, no doubt,” the CEO added.

Digitization is already affecting employment. Telecom group BT announced in 2023 that it will notch to 55,000 jobs, or 42 percent of its workforce, by the end of the decade. The FT previously reported that 10,000 planned job cuts were due to digitization and automation.

Klarna CEO Sebastian Siemiatkowski said in August that AI could help the Swedish group buy now, pay later reduce the number of staff halved. The number of employees in the company fell by more than a fifth to 3,500 last year.

The BCG data follows a string of gloomy economic forecasts for the UK, with recruiters reporting further slowing down hires in December.

The macroeconomic environment, the health of the workforce and the end of excessive hiring following the Covid-19 pandemic have also been highlighted as contributors to the hiring slowdown. Data from the Office for State Statistics published in December showed that the number of vacancies was decreasing even before the budget was adopted.

Meanwhile, the rise of AI has led companies to seek staff with technology-related skills.

Demand for artificial intelligence engineers in the UK jumped in the first half of 2024, according to recruitment group Sanderson, despite redundancies in the wider technology sector over the past 18 months.

“AI will replace some jobs, support some jobs and create some jobs, it will balance itself out,” said James Corcoran, head of recruitment in Sanderson’s government and defense practice.

A government spokesman said the budget “once in parliament” would “wipe it all out” and that the Office for Budget Responsibility had “confirmed unemployment will fall”.

A spokesman said the government was “enabling business to thrive after stabilizing public finances, capping the corporate tax rate at the lowest level in the G7, and . . . creating superannuation mega funds to encourage investment in UK businesses”.

The employment rights bill would support his “plan to increase productivity by ensuring that working people have the adequate wages, security, dignity and standard of living they deserve”, they added.