Prime Minister Keir Starmer is pushing a £45 billion ($58 billion) cost-cutting plan that will replace bureaucracy with artificial intelligence, slash civil service jobs, and digitize public services.
In a speech on Thursday, Starmer will say that no public worker should be stuck doing tasks that AI can handle faster, cheaper, and at the same quality.
The Labour government, which took power last July, is tackling government inefficiency as part of its strategy to revive the UK’s stagnant economy.
Chancellor Rachel Reeves is leading efforts to cut government spending, while Starmer is focused on eliminating red tape and making the government run like a modern business.
Frustrated by slow, outdated systems since taking office, Starmer plans to streamline government operations, reduce paperwork, and cut reliance on costly private contractors.
Government cuts civil service jobs and automates public services
The government is setting a target to reduce administrative regulatory costs by 25%. Technology Secretary Peter Kyle said the UK could save £45 billion annually by using AI and digital tools in public services, though he did not provide details on how the figure was calculated.
The civil service, which expanded to over 513,000 employees last year due to Brexit and pandemic-related hiring, is set for a massive reduction.
Cabinet Office Minister Pat McFadden confirmed the government’s plan to cut jobs and transition 10% of civil servants into digital or data roles within five years.
“The central civil service would and can become smaller,” McFadden said, adding that the goal is efficiency, not an ideological attack on government jobs.
More than 10,000 civil service positions will be eliminated through voluntary redundancies. McFadden also announced a crackdown on welfare dependency, saying, “It’s not fair on the taxpayer.”
The UK remains the only G7 country that has not restored pre-pandemic employment levels, and McFadden stressed that the government needs to act fast to boost productivity.
Chancellor Rachel Reeves warns of deeper budget cuts
As Starmer pushes AI-driven reforms, Reeves is dealing with the financial fallout of rising borrowing costs. The chancellor met with primary dealer firms in the gilt market last Thursday, kicking off twice-yearly meetings to discuss bond market volatility and government borrowing strategies.
Reeves assured economists that she will control public spending, despite the Office for Budget Responsibility’s (OBR) forecasts showing that she is on track to miss her fiscal targets.
“The government is committed to bearing down on spending through efficiency and reform,” Reeves told gilt dealers’ economists. She emphasized that the government will stick to its fiscal rules, which require it to cover everyday expenses with tax revenues by 2029-30.
However, Reeves’ fiscal headroom vanished earlier this year when rising global bond yields drove up borrowing costs. Gilts have since stabilized, but another spike in costs could force steep budget cuts across Whitehall.
The Treasury’s spending review is scheduled for June 11, and many government departments are preparing for significant reductions.
Gilt market pressures and shrinking government debt sales
The Treasury has annual consultations with gilt dealers and investors, but the fact that Reeves herself is leading discussions instead of an economic secretary signals that the government is ramping up engagement with financial markets.
At the last annual consultation in January, both investors and dealers called for fewer long-maturity gilt sales. The UK’s primary dealers, which buy bonds directly from the government and resell them to the market, play a crucial role in maintaining liquidity in government debt markets.
Since the 2008 financial crisis, many banks have left these roles, making it harder to sell bonds efficiently. A decade ago, there were 21 official gilt dealers, but that number has fallen to 18.
Societe Generale SA and Jefferies Financial Group Inc. are among those that exited the UK gilt market, though Bank of Montreal joined last year.
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