AI Could Transform UK’s Public Finances as Labour Touts Gains

(Bloomberg) -- The next UK government can help turn around the dire state of the national finances by harnessing artificial intelligence to boost public services, according to two research groups.

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The Tony Blair Institute for Global Change and Institute for Public Policy Research said the technology can boost output from front-line services at a time when many parts of the public sector are creaking.

The claims come as the opposition Labour Party, on course to win the July 4 general election, vowed to use technology to “restart the engine of our economy,” saying that the services-heavy UK is “uniquely positioned” to benefit from AI.

Whoever wins is likely to face tight budget constraints from high debt levels and elevated interest rates after and the pandemic and inflation battered the public finances. It has made it more difficult for the parties vying for power to promise major spending increases to improve public services that have deteriorated in recent years.

However, the remarks suggest AI may brighten the outlook if it can boost economic growth and make public services more efficient. Labour, which is more than 20 points ahead of the ruling Conservatives in opinion polls, has talked up the possibility of improving the outlook on public finances through AI.

Peter Kyle, the shadow technology secretary, on Wednesday laid out plans to help the UK’s tech sector, pointing to the potential boost to growth that AI could bring. He has previously said AI could increase the amount of fiscal headroom available to the government to £70 billion ($89.3 billion) within five years, money that could be plowed into investment.

Jeegar Kakkad, director of government innovation at the Tony Blair Institute, said that the fiscal gains could be even bigger if the next government embraces the technology that could make a “massive difference to the public sector.” He pointed to potential uses in the National Health Service, which has struggled to cope with lengthy waiting lists since the pandemic.

“Even with really simple off-the-shelf technologies, we can begin to modernize our public services, get them on the sure footing and then prepare for that next wave of bigger savings that politicians are talking about,” he said in an interview with Bloomberg’s UK Politics podcast.

Carsten Jung, senior economist at IPPR, was more cautious on the speed at which AI can transform the economy and public sector, saying it will “hugely depend on the exact way we implement it.”

“In an optimistic scenario, you can boost GDP in the public sector, but across the economy as a whole, by up to 13% in total,” he said in an interview with Bloomberg’s UK Politics podcast. “In a worst-case scenario, you could adopt AI widely but have exactly 0% additional increase in GDP.”

Public services have been dogged by years of poor productivity in recent years, with critics of the Conservative government blaming underinvestment since 2010.

Chancellor of the Exchequer Jeremy Hunt earmarked billions of pounds at the Budget in March to help boost productivity in the NHS to bring down waiting lists that hit a record high after the pandemic. The Institute for Fiscal Studies warned last year that more funding and staff in the NHS has not resulted in a similar increase in patients treated in hospital.

A survey of government bodies by the National Audit Office found that 70% were piloting and planning AI use cases even though the technology was not being rolled out widely yet. The watchdog concluded that AI could “transform” public services and find “large-scale productivity gains.”

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