James Reed, chairman and chief executive of one of the UK’s largest recruitment firms, has urged Chancellor John Healey and Prime Minister Andy Burnham to increase taxes on artificial intelligence (AI) tools in the upcoming budget as a means to reduce the cost of employing young workers. The proposal aims to address a significant decline in opportunities for graduates and entry-level staff, which Reed warns could lead to a "missing generation" in the workforce.
Reed expressed concern that the widespread adoption of AI technologies in business is displacing tasks historically performed by young recruits, thereby threatening the development of future business leaders. He emphasized that sustained reductions in entry-level roles would make it increasingly difficult and costly to rebuild the talent pipeline in the long term.
To counter this trend, Reed recommended revising the tax framework around business spending on AI products and automated services. He proposed introducing transaction-based levies on AI tools, akin to value-added tax (VAT), with the revenues redirected to lowering the employment costs for young people. "This isn’t about penalising innovation or the companies building AI," Reed said. "It’s about making sure that as robots do more of the work, they also do more of the heavy lifting on tax, so that we can keep investing in people."
Reed’s comments come against a backdrop of rising youth unemployment and falling graduate job opportunities. Data from his firm indicates that the number of graduate vacancies has dropped sharply, falling by 72% from 180,000 four years ago to just 50,000 currently. A recent survey Reed conducted of 2,000 individuals aged 16 to 24 found that young jobseekers apply widely yet often face silence from potential employers, with 54% reporting no response to at least one application.
Adding to the urgency, a separate survey by the Confederation of British Industry (CBI) found that nearly three-quarters of nearly 700 firms identified employment costs as the biggest risk to the UK’s labour market health. Rain Newton-Smith, the CBI’s chief economist, cautioned that heightened employment expenses and increasing regulatory burden are prompting businesses to become more cautious about hiring and investment, a trend that particularly affects young people trying to enter the workforce.
The government faces mounting pressure to introduce measures supporting youth employment in the upcoming budget, scheduled for October 28. Youth unemployment has recently hit its highest point in over a decade, intensifying calls for policy responses. The Federation of Small Businesses, under national chairwoman Tina McKenzie, also urged the government to address the persistent rise in costs that have constrained small enterprises in recent years.
On the political front, at the Conservative Party conference last week, shadow chancellor Andrew Griffith pledged that, if the party returns to power, they would lower national insurance contributions for young workers. This contrasts with recent tax increases, including a £25 billion rise in employer national insurance contributions introduced by former Chancellor Rachel Reeves, a move that has particularly impacted sectors with high youth employment, such as retail, leisure, and hospitality.
As the budget approaches, businesses, lobby groups, and political leaders are debating how best to balance support for innovation in AI with policies that ensure young people continue to gain entry into the workforce.