Chancellor Rachel Reeves has unveiled her maiden Spring Statement, introducing a strategic plan poised to significantly impact the UK’s technology sector. Central to this plan is a shift towards AI, with the government aiming to leverage the technology for efficiency and cost reduction across public services.
In her statement, Reeves outlined substantial government budget cuts while confirming the absence of new tax increases. The focus was placed on automation as a means of achieving budgetary savings, indicating a clear move towards AI-driven solutions. The strategy involves modernising the Civil Service into a more productive entity, backed by technological advancements. This includes the cancellation of thousands of government procurement cards as part of broader efforts to enhance operational efficiency.
Reeves announces Transformation Fund to drive digital innovations
A significant component of this strategy is the creation of a £3.25bn Transformation Fund. This fund is designed to support a comprehensive reform of public services, enabling the adoption of digital technologies and AI. The ultimate goal is to transform frontline service delivery, securing long-term savings for taxpayers. The initial allocations from this fund will be directed towards developing AI-powered tools aimed at increasing civil service efficiency and incorporating advanced technology within probation services.
Reeves also announced plans to digitise HMRC operations in a bid to address tax avoidance issues. Additionally, £42m from the Transformation Fund will be allocated to three Frontier AI Exemplars led by the Department for Science, Innovation and Technology (DSIT). These exemplars are set to test and deploy AI applications, aiming to streamline government operations and reduce administrative burdens.
In preparation for these changes, the Chancellor had previously revealed plans to cut 10,000 civil service ‘back office’ jobs, asserting that AI and automation would be pivotal in filling these gaps. She reiterated this stance during her announcement, highlighting that this investment in pioneering AI tools is expected to enhance efficiency, productivity, and user focus within public services.
Industry reaction to the Chancellor’s announcements proved mixed. While Celonis’ general manager for the UK, Ireland and MEA region Rupal Karia said that AI certainly had the potential to boost national productivity and innovation, the recent findings of the Public Accounts Committee about the government data that’ll be used to underpin AI deployments is worrisome. “Significant challenges need to be addressed to capitalise on AI,” said Karia. “Many public sector technology systems remain outdated, often reliant on legacy infrastructure, siloed data, and manual workflows. These inefficiencies create costly bottlenecks and hinder the delivery of modern, responsive public services.”
The chief executive of ScaleWise, a GTM advisory group for early-stage UK startups, also worried that the statement did not do enough to address concerns about the state of entrepreneurship within the country’s tech sector. “In autumn last year, the government announced various pilots and investments in the digital and tech sector, having identified this as a particular area for growth,” said Tom Glason. “However, we need clear, practical policies and a roadmap that will attract capital into the innovation economy to help scale promising UK tech. The government must create an environment where investors feel confident to back the companies that will define the next decade of economic growth.”
The UK government’s ongoing challenges include managing fiscal deficits and addressing weak productivity growth. Between 2010 and 2019, productivity increased by only 0.3% annually compared to 2% before the crisis. Bailey underscored the necessity of investing in workforce skills to fully leverage AI’s potential benefits.
In January 2025, Prime Minister Sir Keir Starmer instructed Cabinet members to prioritise AI development across their departments. This directive aimed at addressing stagnant productivity levels involves an ambitious strategy to embed AI throughout the economy and public services. The plan is designed to deliver substantial economic gains over the next decade, aligning with International Monetary Fund (IMF) forecasts predicting a potential annual productivity rise of 1.5%.
Read more: UK government pins productivity hopes on AI plan
