UK budget sets GBP £26 billion tax rise & new AI investment

The UK Government has unveiled its latest budget, outlining a new set of tax rises worth GBP £26 billion alongside a series of measures aimed at advancing artificial intelligence development and digital skills in the UK. The budget features notable support for the technology sector, but business and technology leaders raised concerns about the impact of increased tax burdens on productivity, competitiveness, and innovation capacity.

Taxation pressure

The budget confirmed a sustained focus on paying down national debt through increased taxation, with implications for businesses nationwide.

John Phillips, General Manager EMEA, FloQast, said: "The budget offers a split-screen view of the UK economy: commitments to AI on one side, and tax rises that could tighten the margins for innovation on the other. Paying down national debt is a sound long-term policy, but the added tax burden will squeeze finance teams already under pressure. That makes operational integrity more critical than ever."

"Organisations will need clarity, accuracy, and smarter workflows to navigate the constraints. Investments in AI can also help to optimise financial discipline. It shifts the account role from 'preparers' to 'reviewers' and allows routine, rule-based work to be automated with high accuracy, freeing accountants to focus on strategic analysis, resource allocation, and growth initiatives."

Business figures warned of the risk of overreliance on tax changes to address budgetary shortfalls, particularly given that productivity continues to lag that of other major economies.

Ash Gawthorp, Chief Technology Officer and Co-founder, Ten10, said: "While the Budget sets out a wide range of revenue-raising measures, including the extension of frozen tax thresholds, higher taxes on savings, dividends and property income, and new charges on electric vehicles, the UK still risks relying too heavily on tax changes to close fiscal gaps at a time when businesses continue to face rising costs and strained operating conditions. The OBR's latest report shows that productivity has been revised down and that lower productivity will directly reduce future tax receipts, which reinforces the need for a more ambitious plan to modernise how public services and industry operate."

"The Chancellor confirmed a GBP £14 billion target for efficiency savings supported by AI and automation, yet there is still no clear strategy for how departments will build the technical capability required to deliver these gains. AI can remove manual processes, accelerate decision-making and support organisations in achieving more without increasing cost, but these outcomes depend on structured planning, the right skills and consistent adoption."

"Without a more detailed approach to scaling digital transformation across government and industry, today's tax measures risk addressing short-term fiscal pressures rather than the deeper structural challenges that continue to hold back productivity and growth," said Gawthorp.

Tech investment

The budget included investments in AI infrastructure, such as the creation of four AI Growth Zones, funding for a national supercomputer, and capital injection for technology within the NHS and HMRC. Despite these commitments, observers noted the limitations caused by the UK's broader fiscal constraints.

James Clark, Partner, Spencer West, said: "In the Prime Minister's address to London Tech Week in June of this year, he declared that he wanted the UK to be the 'best state partner for tech entrepreneurs anywhere in the world'. The Government's AI Opportunities Action Plan set out a bold vision of a country investing in and benefiting from the technology of the future. So has the PM's vision been borne out by today's budget? Yes and no."

"There are definitely nuggets in there to cheer tech enthusiasts, including: The establishment of four AI Growth Zones; Funding of a modern public compute ecosystem, including a new national supercomputer service in Edinburgh; An AI for Science Strategy to boost researcher productivity; Funding from UK Research and Innovation for innovative UK companies; Capital investment in NHS and HMRC technology infrastructure."

"However, the scale of investment is necessarily constrained by the wider pressures on the public purse. By way of example, each AI Growth Zone will be backed by just GBP £5 million of investment. Also, these commitments need to be seen in the context of the wider impact on technology businesses, including start-ups. Here, there is some bad news, including the increased rate of tax on dividend income, the decrease in CGT relief on qualifying disposals to Employee Ownership Trusts (popular with tech businesses) and the hike in the CGT rate for business owners selling their business."

Digital skills

The government announced GBP £187 million for digital skills through the Techfirst programme, alongside planning reforms to accelerate the delivery of AI projects.

Professor Rachid Hourizi, Director, Institute of Coding, said: "The investment in artificial intelligence is most welcome, but its success will depend on ensuring people - not just technology - are ready to use it. The UK cannot unlock the full economic potential of AI without a workforce that has the confidence and skills to apply these tools in real workplaces. Ongoing commitment to investing in AI infrastructure remains equally important as adult learning, digital training, and reskilling support. With the right focus on people, today's commitments can help deliver higher productivity, better jobs and a more inclusive digital economy."

Retail technology

Retail leaders argued that the sector requires investment in digital infrastructure to support competitiveness.

Ed Bradley, Chief Growth Officer, Virtualstock powered by Logicbroker, said: "Retail continues to operate in one of the toughest cost environments in decades. If the Government wants to stabilise a sector that underpins the UK economy, it must restore consumer confidence and improve competitiveness - not simply shift tax burdens around. Closing the import-tax loophole is a long-overdue step towards fairness, but it will only work if enforcement is digital. Without modern, data-led customs infrastructure, UK retailers will continue to compete on an uneven playing field. Ultimately, its tech, not tax - that will deliver the growth retail needs."

"Real-time stock visibility, faster supplier onboarding, and automated fulfilment are essential for reducing costs and unlocking productivity. As agentic AI reshapes the way consumers search and shop - much like eCommerce did 20 years ago - the UK cannot afford to fall further behind the US. The Government must back retailers with the digital investment and infrastructure needed to keep the UK competitive in the next era of retail."