Rishi Sunak has called for a rethink of how work is taxed, warning that Artificial Intelligence is beginning to shift hiring patterns as companies weigh the cost of people against automation. He argued that employers face immediate costs when hiring through national insurance contributions, while deploying Artificial Intelligence carries no equivalent tax burden. He said that gap could grow in importance as businesses adopt the technology and warned that policy risks falling behind changes already emerging in the labor market.
Early evidence points to hiring pressure rather than broad job losses. Research from Anthropic found no clear rise in unemployment in Artificial Intelligence-exposed roles since the launch of generative Artificial Intelligence tools, but pointed to a slowdown in hiring, particularly among younger workers. Job entry rates for those aged 22 to 25 in exposed occupations have fallen compared with pre-2022 levels. Separate industry data suggests firms are already adjusting behavior. The British Standards Institution found 41 per cent of businesses say Artificial Intelligence is enabling headcount reductions, while nearly a third now consider Artificial Intelligence solutions before hiring a human. At the same time, more than 1.17 million jobs having been axes in the US in 2025, as companies restructured following the pandemic-era hiring boom.
Sunak said official labor market data is often too slow to capture real-time shifts in hiring and job design. He backed plans by Rachel Reeves to establish an Artificial Intelligence economics institute, but said it would need access to live data from job markets and technology firms to be effective. He framed the issue as a choice between shaping the transition and allowing it to outpace policymakers.
He also highlighted deeper structural questions about the tax base. Employer national insurance contributions generate more than £100bn annually for the Treasury, but economists have increasingly questioned whether taxing employment remains fit for purpose as automation becomes a viable alternative. Denmark and New Zealand were cited as countries that place less emphasis on taxing jobs and rely more on income or consumption taxes. In the UK, recent increases in employer national insurance have added to hiring costs as businesses explore automation, offshoring and alternative labor models, and surveys suggest some employers have already built those costs into decisions to slow recruitment or reduce headcount.
Policy responses under discussion range from cutting taxes on employment to encourage hiring, to imposing levies on companies that replace workers with Artificial Intelligence, though ministers have rejected the latter so far. Sunak also pointed to skills as a growing constraint, with fluency in Artificial Intelligence increasingly treated as a baseline requirement. That shift is raising concerns that entry-level jobs, long used as a route into the labor market, could shrink as routine tasks are automated.
