UK creative industries are wary about tax breaks for AI-related activities

  • Recent UK economic policies grant tax breaks to companies investing in AI technology
  • The creative industries are worried that this makes investing in human workforces less appealing
  • It also raises a familiar question: who pays taxes when AI takes people's jobs?

New economic policies in the UK incited concerns about the cost-effective replacement of humans by AI.

Speaking at a recent roundtable discussion, leaders from the film, publishing, and music sectors expressed concern about a recent economic strategy named the “full expensing” tax break.

This allows businesses to make tax deductions for investments in machinery and software, including some AI-related products. 

Nicola Solomon, CEO of the Society of Authors, said this accelerates the risk of machines replacing humans. 

She described, “If you buy in large amounts of machinery or software you will get capital allowances for that. If you take on real people, you have to pay their tax, their National Insurance and so on. So it actually becomes cheaper to buy and use machinery than to buy and use people, even if the base costs were the same.”

Solomon further warned about the risk of tax incentives redirecting funds to large, often foreign-based tech companies, which could harm the UK economy. 

“We need money to be in the hands of people, because we all understand that people spend and that stimulates the economy. But if the money goes into the hands of a very few tech companies often based outside the UK, often that don’t pay tax in the UK, then what we are doing is siphoning money out of the economy, and that is bad for everybody.”

Representatives from the Society of Authors and leading executives from major record labels like Universal, Sony, and Warner discussed these issues at the roundtable meeting. 

The debate extended to the use of intellectual property in AI. Concerns surrounding the unauthorized use of copyrighted work to train AI systems have been ramping up all year. 

The UK government recently formed a working group to explore a new AI code of conduct. However, reports suggest that discussions have reached an impasse because tech companies refuse to recognize their data use as copyright infringement – that would expose them to legal risks. 

In terms of solutions, Solomon suggests that policies like universal basic income (UBI) and improved freelancer rights could balance the market. However, these remain theoretical solutions to an already pressing situation. 

Who pays taxes if AI takes everyone’s jobs?

The cross-industry influence of AI has sparked a crucial debate: Who bears the tax burden if AI replaces human jobs on a large scale? Studies have estimated AI will replace low-paid service jobs by 2030, but highly-skilled jobs are in jeopardy, too. 

If people lose their jobs to AI, will AI companies make up the difference in taxation? 

There are two broad possibilities: 

  1. Taxing AI and automation: One proposal is to implement taxes directly on AI systems and automation. This could involve taxing the profits generated by AI or imposing levies on AI-operated machines. The rationale is that companies benefiting from cost savings and increased productivity due to AI should contribute a portion of their gains to the public coffers.
  2. Universal Basic Income (UBI): Some, including top AI researchers like Inflection CEO Mustafa Suleyman, advocate for a Universal Basic Income. This system would provide a regular, unconditional sum of money from the government to all citizens, partly funded by the increased tax revenues from AI and automated systems.

The challenges of regulating tax in the era of AI

If we do find ourselves in a future where people work considerably less due to AI automation, there will certainly be challenges to overcome. Consider:

  1. Defining AI for tax purposes: Where do you draw the lines of how to tax AI? What constitutes AI, and how do you assess its economic value? This includes differentiating between various levels of automation and AI sophistication.
  2. International coordination: AI technology transcends national borders, so you’ll need international cooperation to develop effective taxation strategies. This includes agreeing on standards for taxing AI and preventing tax evasion by multinational corporations.
  3. Impact on innovation: Another concern is whether taxing AI could stifle innovation. Companies might be less inclined to invest in AI development if they face additional taxes on these technologies, potentially slowing technological progress.
  4. Social equity: As AI transforms the job market, there’s a risk of increasing inequality. High-income individuals and corporations might benefit disproportionately from AI, while lower-income workers could face job displacement. 

Currently, AI is in the stage of rapid innovation. Governments who want a slice of AI-driven efficiency, are more keen to give companies tax breaks rather than increasing taxes. 

However, as debates in the UK show, some industries will be hit harder than others once automation percolates ever-deeper into job markets.

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