AI skills gap in UK businesses worsened by IR35 policies

New research has identified a significant gap in AI skills within UK businesses, which is being exacerbated by restrictive government policies such as IR35 and increased National Insurance contributions.

The report, released by Gigged.AI, highlights the challenges UK businesses face in recruiting and training the talent needed to close this skills gap, amid government ambitions to become an AI superpower. With 92% of companies prioritising upskilling in Generative AI, the need for skilled AI professionals is pressing, yet policies are hindering progress.

AI and machine learning have been identified as the most in-demand skills for 2025, according to the report's findings. The anticipation is for a sizable shift towards a more automated and data-driven workforce, with nearly half of the workforce expected to integrate generative AI by 2025. It is projected that employees could save on average four hours per week due to AI-driven efficiencies.

However, there are growing fears among businesses about job replacement due to AI advancements. The report states that almost a third believe that generative AI could replace between 11-25% of roles by 2025, escalating to 26-50% by 2028. In the technology sector specifically, the pace of change is stark, with a reported 41% of roles at risk by 2028.

Concerns over IR35 and rising National Insurance contributions have been raised, with 35% of businesses expecting to hire fewer individuals due to these laws. The IR35 reforms, which limit the use of freelancers by making them subject to similar tax responsibilities as full-time employees, are particularly affecting the ability to recruit talent in high-demand fields like AI. As a result, many capable freelancers are seeking opportunities outside the UK.

Rich Wilson, the CEO and Co-Founder of Gigged.AI, stated, "The AI revolution is upon us, but businesses are being forced to scale back their recruitment efforts due to government policies that restrict access to skilled talent. The rise in national insurance and the lack of addressing IR35 continues to place an undue burden on freelancers and businesses alike. Without reform, IR35 restricts companies' ability to bring in skilled AI contractors, while freelancers are left in an environment that limits their potential and job security."

Wilson further commented, "Whilst the government seems to be embracing AI with this new plan, its actions in the Autumn budget will mean a delay in the fundamental elements needed to fully embrace AI in the UK. The AI skills gap is no longer a future problem—it's here. We need to rethink education and training pipelines to meet the demands of emerging technologies and ensure the UK remains competitive on a global stage."

Recommendations from Wilson include scrapping National Insurance increases to keep AI work within the UK, removing IR35 reforms to facilitate freelancer engagement, and creating a platform for internal mobility across government departments.

Internal mobility is identified as a crucial strategy for addressing current skills shortages. Thirty-three percent of open positions in the past year were filled internally, with companies relying increasingly on internal job boards and development programmes as solutions. Despite these efforts, 26% of businesses report a lack of internal capability to meet AI transformation demands, while 31% lack the budget to sufficiently upskill existing employees.

Hung Lee, Curator at Recruiting Brainfood, remarked on the importance of understanding organisational skills: "It's hard work to collect data, validate it and keep it current. The rise of AI presents both challenges and solutions as businesses can no longer afford this 'skills blindspot' and yet now also have the promise of a transformational innovation which can handle data problems of practically infinite scale. The organisations who will be the leaders of the AI-enabled era are likely to be those who have the strongest skills intelligence."