The UK’s financial regulators are set to come under more pressure to scrap regulations that the government believes are anti-growth’ as they prepare to meet Chancellor Rachel Reeves on Thursday. The meeting comes as pressure mounts on Reeves over rising borrowing costs and a falling pound, and as the government seeks to regain momentum with a focus on AI.

According to the FT, the government is facing criticism from the business community over what is seen as the negative impact of a number of new rules, including the recent Employment Rights Bill. One of the most contentious measures is the increase in employers’ national insurance contributions to 15% from April this year, a move Reeves announced last October.

But the government has said it has a clear goal of getting rid of unnecessary regulation, while at the same time introducing new rules where necessary. On Thursday, Reeves will meet 17 of the UK’s regulatory watchdogs to discuss updates on a letter she, along with Prime Minister Keir Starmer and business secretary Jonathan Reynolds, wrote to them on Christmas Eve. In that letter, the government asked UK regulatory bodies to identify pro-growth proposals.

CBI criticism

On Monday, Rupert Soames, chair of the Confederation of British Industries (CBI) accused the government and Reeves of creating “a hole in confidence and trust of businesses” by increasing taxes, a move the government says is necessary to fill a £22 billion ($27 billion) hole in the nation’s finances.

Soames told the BBC the government was squeezing the private sector, and criticized new rules such as the Employment Rights Bill, which critics believe will stop employers from hiring new staff.

“I think not only will they not employ, I think they will let people go. There could be quite an ugly rush before some of these things come into force,” he said.

But the government has said there is no contradiction in easing regulation and, at the same time, introducing new rules in certain areas. The Prime Minister’s office has said “It’s a balance to be struck on regulation.”

The government’s latest push for deregulation comes at a time businesses are across the UK are looking for ways of dealing with rising taxes and increasing costs.

Investment in AI

A new survey by by the Boston Consulting Group (BCG) revealed that 51% of businesses in the UK are planning to divert investment towards technologies such as AI, instead of hiring new staff.

According to the survey, bosses believe that AI and generative AI is actually more productive and cost effective. BCG experts reckon the UK government’s decision to increase national insurance contributions by employers is a major reason behind the shift towards AI.

Of the 251 businesses that took part in the survey, 57% said they will recruit fewer people in 2025. Also, 44% of the surveyed businesses have said investing in AI was a priority for them.

BCG’s managing director and partner, Nick South, told the FT: “People are starting to see, with AI and generative AI, the potential of those technologies to be more productive … in a world where the costs of employment are increasing.”

Details of the BCG survey emerge at the same time as the UK government’s own plans to focus and rely more on AI to kick-start economic growth and productivity.

On Tuesday, Starmer announced a new plan to “unleash” AI across the country to start and deliver a decade of renewal. The so-called AI Opportunities Action Plan, however, comes with a promise to create more than 13,000 AI-related jobs across multiple sectors in the UK in the coming years.

According to a press release, AI will drive the Plan for Change, turbocharging growth and boosting living standards. It is aimed at allowing the public sector to do less administrative work and focus more on delivering key services to the public.

“AI can transform the lives of working people – it has the potential to speed up planning consultations to get Britain building, help drive down admin for teachers so they can get on with teaching our children, and feed AI through cameras to spot potholes and help improve roads,” the press release reads.

Starmer has said the plan “mainlines AI into the veins of this enterprising nation – revolutionising our public services and putting more money in people’s back pockets.”

As part of the plan, major tech companies will invest £14 billion ($16.95 billion) in the UK’s AI infrastructure, which it is estimated will create more than 13,000 jobs.

Plan for change

Economic growth is at the heart of the new plan, with the government hoping that it can raise an average of £47 billion ($56.91 billion) each year over the next decade. Other key details include:

• The establishment of dedicated AI Growth Zones “to speed up planning for AI infrastructure.” That infrastructure will be built by major tech firms including Vantage Data Centres, Nscale and Kyndryl.
• An investment by those three firms of £14 billion ($17 billion) in the UK’s AI infrastructure. That’s on top of the £25 billion ($30.27 billion) investment announced during last year’s International Investment Summit in London.
• Vantage Data Centres building one of Europe’s largest data centre campuses in Wales – with plans to invest over £12 billion ($14.6 billion) in data centres across the UK – creating over 11,500 jobs in the process.
• Kyndryl establishing a new tech hub in Liverpool which will create around 1,000 AI-related jobs over the next three years.
• Nscale investing a total of around $2.5 billion in building data centres, with plans to build the largest UK sovereign AI data centre in Loughton, Essex, by 2026.
• Forging new AI Growth Zones to speed up planning proposals and build more AI infrastructure. The first of these will be in Culham, Oxfordshire.
• Increasing the public compute capacity by twentyfold to provide the processing power needed to fully embrace this new technology – this starts immediately with work on a brand new supercomputer.
• A new team will be set up to seize the opportunities of AI and build the UK’s sovereign capabilities.
• Creating a new National Data Library to safely and securely unlock the value of public data and support AI development
• A dedicated AI Energy Council chaired by the Science and Energy Secretaries will also be established, working with energy companies to understand the energy demands and challenges which will fuel the technology’s development. This will directly support the government’s mission to become a clean energy superpower by tapping into technologies like small modular reactors.

UK as global AI leader

The government believes these measures “will make the UK irresistible to AI firms looking to start, scale, or grow their business.” It will also establish the UK as a global leader in AI.

The plan is said to be “at the heart of the government’s Industrial Strategy and the first plank of the upcoming Digital and Technology Sector Plan, to be published in the coming months.”

Peter Kyle, the Science, Innovation, and Technology Secretary, said the plan is aimed at “building our status as the cradle of computer science and intelligent machines and establishing ourselves as the third largest AI market in the world.

AI regulation in Northern Ireland

Northern Ireland is set to take a different approach from the UK on AI regulation, as it prepares to embrace the EU AI Act, a new law set to be phased in from next month across the bloc.

Despite the UK’s departure from the EU as a result of Brexit, Northern Ireland still has access to the EU goods market because of a customs border in the Irish Sea. This means that Northern Ireland was also subject to some EU laws, and those laws will now extend to digital operations and AI regulation, the FT has reported.

On the subject of AI regulation, Prime Minister Keir Starmer has said the UK should adopt a distinctively British approach.

Writing for the Financial Times he said: “Britain shouldn’t just be excited about AI – it should be confident. We don’t need to walk down a US or an EU path on AI regulation — we can go our own way, taking a distinctively British approach that will test AI long before we regulate, so that everything we do will be proportionate and grounded in the science.”

Some politicians in Northern Ireland are concerned about how a different AI regulatory regime will play out in practice.

Steve Aiken, a senior member of the Ulster Unionist Party, was quoted by the FT saying: “I don’t think people have really woken up to the fact that the digital border is going to be significant. We can’t be in a situation where the UK is, for instance, more aligned with the United States [on AI regulation] and Northern Ireland is stuck in the EU.”