The AI Deficit
If you believe Artificial Intelligence is going to lead to universal basic income and endless days of leisure, you need to read this. Over the October half-term, I was having a conversation with a family member about AI, and he said, “I can’t wait for AI to take over, so that we can have time to do fun things and I can play golf all day.” This was the first time I’d met someone with this view in real life, normally they were random people on LinkedIn. “You know that’s not how it’s going to be right?” I started to say. He cut in with some stuff along the lines of how AI will be great, it will free us up, we can do all the things we really want to do…and so on. At the risk of sounding like a luddite, I said nothing more.
I’ve been reflecting on that conversation for about five weeks, and I’ve come to the conclusion that either I’m missing something huge, or we as humans are extremely trusting. The more I think about this situation, the more it doesn’t add up to me, mathematically, or psychologically. So let’s break it down, and I’ll focus on the mathematical side, albeit, it will be a back-of-a-cigarette-packet type of analysis.
The UK government generated a revenue of £1.1tn in the 2024/2025 fiscal year. 42% of that, i.e. £476bn was from income tax and national insurance contributions. In the same time period, the government would spend £1.3tn (running at a deficit of £137bn).1 I’m highlighting that the UK government budget for 2025 has a deficit to help people understand that there isn’t some spare cash lying around. The UK government spends 30% its revenue i.e. £384bn on social protection (which includes unemployment benefits)23.
If AI were to displace 10% of workers, we don’t have to think too far to see that there will be a reduction in that £476bn raised from income tax and NI, and on the other end, there will be more people vying for the £384bn social protection pot, plunging future budgets into more of a deficit, or simply reducing the amount of benefits people get.
Ok, let’s talk about benefits. I know there are people out there who think that people on benefits are living in some luxury utopia. They believe people get all that luxury from being lazy or having too many children. I don’t really know anyone on benefits, but I don’t believe being on benefits is comfortable, so if you are among the 10% who are displaced by AI, I don’t believe it will be comfortable or fun.
The other school of thought I see around is that if the government can’t afford to pay you, then, your employer will pay you 100% of your wage for perhaps 50% of your time because there will be so much efficiency and productivity. I don’t buy this, I think a lot of medium sized organisations will disappear if the trajectory continues. For example, Google only has to introduce certain features and companies like Slack, Duolingo etc will disappear. ChatGPT only needs to start taking advertisement revenue and websites that rely on advertisements are suddenly in trouble. My point is, the company you work for will likely see reduced margins, so you are probably not going to get 100% salary for 50% of your time.
The other argument is that the big tech companies that own the AI should pay to supplement people’s wages. Since most of these companies are American, it’s fair to say that if you are in the USA, then that’s a hopeful stance to take. In the UK, in 2021, the seven largest tech companies paid combined taxes of £758m4. Please pause and read a few paragraphs above and see that the social protection pot is £384 BILLION, but tech companies paid less than 1 BILLION. You ain’t gonna get enough cash from Sundar Pichai, Satya Nadella, and Sam Altman to go golfing.
So where does this leave us? I’m not trying to bring doom and gloom, neither am I being a luddite. I love tech and I use AI all the time. I’m just conscious that there’s a lot of people that have rose-tinted glasses on and are not seeing the possibility of a darker future which AI could bring, and I’d like to wake you up. So what can you do?
Have these conversations with your family and friends
Write to your MP and tell them your concerns. Not sure what to write? Just copy the template below, but make sure you change the bits in bold to your details. If you don’t know who your MP is or their contact details, click here and enter your postcode in the search box.
The numbers don’t lie: A future where AI displaces millions will not result in a leisure-filled utopia, but a severe deficit in public funds and private incomes. The time for rose-tinted optimism is over; we must engage with this economic truth before it engages us.
Email Template
Email Subject: Query on the Economic Sustainability of AI Automation
Dear (put your MP’s name here),
I am writing to you as a concerned constituent to raise a serious, but ignored, economic issue: the financial viability of mass AI job displacement.
While some practitioners promise an “AI utopia” of leisure, a basic analysis of the UK’s budget shows this is financially impossible. If AI displaces workers, the tax base (£476bn in Income Tax/NI) shrinks while the demand on the Social Protection pot (£384bn) skyrockets, leading to a massive deficit that cannot be sustained.
This critical issue is summarized in a recent blog: https://itoroliney.substack.com/p/the-ai-deficit
I am worried that the government is not preparing for this funding crisis. As my representative, I urgently ask that you investigate and share:
What specific analysis is HM Treasury conducting on the expected reduction in tax revenue over the next decade due to AI automation?
What is the Government’s plan for funding social protection and unemployment benefits once large-scale AI displacement is underway?
I urge you to take immediate action to address the economic reality of AI, rather than relying on an unfunded promise of utopia.
Sincerely,
Add your name and address here