Artificial intelligence could slash government tax revenues by the equivalent of Britain’s entire education budget, even if the economy continues to grow, according to a scenario modelled by the Office for Budget Responsibility (OBR).

Buried in a recent July report, the fiscal watchdog examined one long-term scenario in which AI significantly reduces the share of national income earned through wages as automation replaces jobs.

Under the model, the wage and salary share of GDP falls from around 40 percent in 2030–31 to just 20 percent by 2075–76.

Although total economic output remains unchanged, tax receipts fall by almost four percentage points of GDP, dropping to below 35 percent.

Why does this matter?

Because if AI makes companies richer while replacing millions of routine jobs, the tax burden could increasingly fall on the workers whose jobs are hardest to automate, like fixing your roof, cutting trees, cleaning offices or pulling pints (though they could be replaced by robots too).

Commenting on the figures, financial commentator on X @AscendedYield estimated that a four-percent decline in tax revenue would equal roughly £120 billion a year in today’s money, almost the same as the UK’s annual education budget.

“And the OBR admits the offset may not even arrive. The scenario assumes AI profits get captured by existing taxes, but they concede this income “cannot be efficiently taxed using existing instruments” may be the reality: gains accruing offshore, hard-to-tax sectors, capital migrating to whoever dominates AI infrastructure. 4% of GDP is ~£120bn a year in today’s terms.”

“Total UK public spending on education is £122bn. The entire education budget, gone from the tax base, without GDP falling by a single pound,” said AscendedYield.

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