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The Welfare Paradox
With the October Budget looming and recent reports suggesting Chancellor John Healey must plug a £35 billion gap to meet Labour’s spending plans, talk has once again turned to cutting the UK’s welfare bill to reduce government expenditure. For years, Britain’s ballooning welfare spending has been the source of much ire in the media, while politicians from right and left alike have stated their intentions of reforming the system to reduce state benefit handouts.
It is undeniably an issue. A 2025 report by The Independent found that 23% of the working-age population (16-64) are now in receipt of a form of benefits, with expenditure on working-age welfare due to rise to £22.2bn higher in 2030/31 than it was in 2024/25. In the previous financial year, the government received £331bn via income tax, while welfare spending totalled £333bn. The bill is forecast to increase by a further £60bn over the next four years, largely driven by the Triple Lock on state pensions. Whatever one’s political stance on the matter, the maths simply does not add up.
So welfare reform is clearly necessary. And Prime Minister Andy Burnham has at least stated he will reform pensions by ending the unaffordable Triple Lock in 2030. But, despite fears of the coming AI jobs-apocalypse, politicians and media alike have seemingly been reluctant or unable to draw the link between welfare and AI automation.
Yes, the state should look to cut welfare spending. A life on welfare, despite what some of the right-wing media will have you believe, is neither desirable nor fulfilling. People need purpose. And jobs, however menial and tough, help provide this. They give us independence and confidence, the opportunity to learn new skills and meet groups of people we would have never otherwise encountered. The current NEETs crisis is so tragic for precisely the reason that the million or so young people not in education, employment or training are missing out on the possibilities work provides. Having experienced a several-month period of unemployment after finishing university, I can say firsthand it feels like the days of your life begin to flit away, with no change in sight.
But there is a paradox at play. To cut welfare, there must be jobs available for those whose primary source of income is abruptly taken away. Yet talk of welfare reform is happening at exactly the time the job market has been decimated, with vacancies currently at a five-year low. The situation is even more bleak at the entry-level, with graduate job vacancies recently hitting their lowest level since records began around a decade ago. As AI adoption increases across businesses, it is these entry-level positions that are hit hardest.
First jobs have historically involved fairly repetitive tasks, such as basic admin and data entry, providing a route into the business and the chance to gradually soak up industry knowledge from fellow employees. But with AI chatbots now able to perform such tasks in a fraction of the time without the cost of salaried employees, businesses which are already financially constrained have taken the opportunity to make cuts. The effect on those looking for work has been drastic.
Those of working age receiving welfare often want a job; they just might not have the support to help secure one. Appearing on The Rest is Politics podcast, Alan Milburn, who is leading an independent review into the rising number of NEETs in the UK, stated that 84% of NEETs want to be in work or training, with surveys showing the one thing young people want above all else is a job. Astonishingly, once a young person goes onto a health and disability benefit for the first time, there is a 50% chance they will still be receiving one in 15 years. Milburn rightly acknowledged that, for some, welfare payments will always be essential and should actually provide greater support. But for many, it should aim to provide a temporary safety net to help them get back on their feet and re-enter society via work. So the question arises: how is it possible to make welfare cuts when there are fewer jobs?
The Labour government at least acknowledges the need to create jobs. It is perhaps why they are the best placed of any party to make such reforms, understanding the government’s duty of care to ensure swathes of benefit claimants aren’t thrown into poverty at a whim. Milburn’s ‘First Chance’ campaign for young people is a step in the right direction, reaching out to over 100 business leaders and major employers to help create entry-level jobs and work experience opportunities. But acknowledgement of the scale of the problem and the ideas needed is still lacking.
In his recent essay on AI, Bill Gates floated the idea of a ‘robot tax’, in which the government taxes the use of AI tokens and robots by companies. Currently, employers contribute payroll taxes on their employees' earnings, but not on their use of technology. By taxing employers’ use of tokens and robots, an incentive would be provided to continue employing people, while also raising tax revenue that could be reinvested into re-training workers and providing the safety net that welfare reform threatens to remove.
Gates also noted that as people work less due to AI, they will pay less tax and government revenues will drop. This will more than cancel out any savings from welfare reform, while citizens’ need for welfare increases. Numerous AI leaders have acknowledged this possibility, with Sam Altman, Elon Musk, Dario Amodei and Demis Hassabis all supporting the idea of a Universal Basic Income (UBI) to distribute the productivity gains generated by AI and minimise the damage caused by its effect on employment. This UBI could be partly funded by a tax on AI companies whose earnings soar while many jobs cease to exist as a result of their products.
A form of UBI will require global cooperation on a massive scale. The U.S. and China are miles ahead in the AI race, raising the threat of a monopolistic scenario where the AI companies of two countries reap the financial rewards of the technology, while work opportunities across the world are decimated. Returning to Gates’ idea, governments must find a system where the benefits of AI can be fully realised in key sectors such as health and scientific research, where AI is used as a tool by the worker to improve their capabilities rather than as a replacement for them.
Alongside this, laws and regulations could be created which place a primacy on human employment in situations where AI use would eradicate whole sectors of jobs, rather than assist the productivity of the worker. Despite what the techno-determinists would have you believe, we have a choice in how we adopt AI if legislators are proactive. The growing anti-AI sentiment among the public proves there is an appetite for regulations which protect individual rights and safeguard jobs.
Addressing this cannot wait for global agreement. Governments historically react slowly to a changing world and technological acceleration. But the speed AI is moving at, alongside spiralling welfare costs, means Burnham’s Labour must address this now; else the nation’s spending will spiral out of control, while the jobs and NEETs crisis worsens and the UK descends into financial chaos, lacking the taxpayers required to pick up the bill. There are signs they understand the problem, but whether they will fix it is perhaps the question that will define the Burnham burst of the current Labour term.
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