Labour hopes AI will save UK economy from jobs crisis
The government has announced a sweeping package of AI investment intended to create thousands of new jobs across the UK, at a time when businesses warn that rising employment costs and rapid advances in AI are already driving workforce reductions.
Ministers have confirmed billions of pounds of private and public AI investment, including a new AI growth zone in South Wales, backed by Vantage Data Centres and Microsoft. Similar boosts are also planned for London and Bristol.
The Department for Science, Innovation and Technology said the measures, which include up to £137m for AI-enabled scientific research and up to £250m for free compute access for researchers and start-ups, are designed to put AI at the centre of the government’s growth agenda ahead of next week’s Budget.
While up to £100m will be deployed to act as a first customer for UK chip start-ups and support a new ‘sovereign AI unit’, chaired by venture capitalist James Wise.
Science secretary Liz Kendall said the package was intended to ensure “jobs and growth in every part of the country”, adding that backing by international investors amounted to “a vote of confidence in the UK”.
Wales secretary Jo Stevens said the plans would “cement the UK’s place as a global leader in AI”.
Labour market strains
The announcements come against increasingly stark warnings from employers over the impact of AI and rising labour costs.
Recent surveys from the CIPD show one in six employers expects to cut staff in the coming year as companies adopt AI, with junior and administrative roles most exposed.
Economist James Cockett said AI risked “leaving many people behind”, noting job seekers were already feeling the effects of slower hiring.
Large private-sector employers, including Microsoft, Deloitte and EY, have recently announced reductions in early-career roles as AI tools take over more routine work.
Amazon and Salesforce have also outlined fresh waves of cuts linked to automation.
The tightening labour market coincides with uncertainty around the Employment Rights bill, which proposes day one rights for unfair dismissal claims and could make restructuring and contract changes more complex.
Several employers have moved ahead with redundancy plans as the bill passes between the Commons and the Lords.
Anthony Wilcox, a partner at TWM Solicitors, said the legislation meant “some redundancy exercises are going to become more complex”, adding that workforce reductions were increasingly being carried out in smaller, repeated waves as firms integrate AI.
Businesses are also bracing for further cost increases as the chancellor considers raising the minimum wage and adjusting employer tax obligations in her Budget to address a sizeable fiscal shortfall.
A recent survey by Employment Hero found that a third of businesses would delay hiring if employment costs rise again, with almost half saying they would have to increase prices.
This comes as the recent Office for National Statistics data revealed that the UK unemployment rate surpassed 5 per cent.