On the face of it, Rachel Reeves\u2019s budget looks like a kind of economic suicide note: huge tax rises planned just before the next general election. The Office for Budget Responsibility says that by then she will be imposing the highest tax rate in history while overseeing anaemic growth in living standards and a borderline debt crisis. Privately she rejects all this, saying the OBR is too gloomy and that something big will turn up. She hasn\u2019t explained what.<\/p>\n
Over in the White House a similar belief underpins Donald Trump\u2019s economic agenda. His One Big Beautiful Bill is a tax-and-spend package that official forecasters say will saddle the US with staggering amounts of debt. Those forecasts are wrong, says the White House. It has published its own scenario involving heroic economic growth, with a windfall in jobs and tax revenue.<\/p>\n
The big hope in both Washington and London is artificial intelligence. A fascinating OBR paper, released alongside the budget, lists AI as the top potential \u201cupside\u201d surprise for UK growth and sketches what this could look like. Vanguard, one of the world\u2019s largest investment firms, puts the chances of an AI-driven productivity surge at 50 per cent. <\/p>\n
\u2022 \u2018I\u2019ll show \u2019em!\u2019 cried Rachel, sounding unhinged<\/a><\/p>\n Essentially, it\u2019s a coin flip. If it happens the tax revenues rise, debt stabilises and chancellors and presidents look like geniuses. If it doesn\u2019t, we enter a doom loop of austerity, job losses and tax rises.<\/p>\n At The Times Budget Briefing in Westminster this week, a reader asked whether, given the potential of the AI era, the government has a plan for it. Mehreen Khan, our economics editor, replied that it\u2019s not really a plan, more of a prayer. This sums it up. Rachel Reeves<\/a> started off basing her economic agenda (she called it \u201csecuronomics\u201d) on the policies of Joe Biden<\/a>. She has ended up resorting to Trumpian blind hope. So this is more prayer-o-nomics, digital Micawberism. Hoping that the AI ship will come in sooner than expected.<\/p>\n In her defence, this is by no means a fantasy. The OBR\u2019s paper says if AI goes well and helps workers achieve far more each day, productivity growth would be revised up to 1.5 per cent a year, from 1 per cent, by the next election. This would mean enough extra revenue to allow Labour to halt its tax rises. It would also change the national mood, setting the scene for the roaring Thirties.<\/p>\n This bullish case has serious advocates. Anthropic\u2019s Dario Amodei argues that within a few years we could have AI systems smarter than Nobel laureates across biology, programming, maths and engineering, working around the clock at 100 times human speed. <\/p>\n If he\u2019s right, the productivity surge isn\u2019t a 0.5-point uplift but something closer to an industrial revolution, compressed into a single parliament. With some \u00a3200 billion more UK tax revenue a year by the end of the next decade.<\/p>\n \u2022 Could this robot be a glimpse into London\u2019s future?<\/a><\/p>\n You can see how these figures are so seductive for politicians \u2014 it\u2019s like a discovery of digital magic beans. No need for the hard graft of welfare reform. No need even for an economic agenda: you plant those beans and sit back. And unlike other fantasies, the first results can already be seen.<\/p>\n