Income tax could become obsolete within five years as AI advancements reshape the economy, according to Tom Blomfield, founder of digital bank Monzo. Blomfield suggests that instead of taxing human labor, governments may need to levy taxes on computational infrastructure, such as data centers.
Blomfield stated, “I don’t think we’ll tax human labour, we’ll tax compute, [meaning systems like] data centres, and then we will use the proceeds to pay for government.” This shift comes as AI systems are increasingly outperforming humans in narrow tasks, with some tools even exceeding university professor-level performance.
The implications for the UK are significant, as the government currently relies on income tax and National Insurance for 42% of its revenue. In contrast, capital-based taxes account for only 4% of total government revenue. As AI continues to evolve, tax accounting may soon require virtually no human involvement.
AI is expected to become generalizable by the end of 2026, which could further accelerate the need for a new taxation model. Blomfield noted, “They’re not yet generalisable, so they’re very narrow geniuses, but by the end of 2026 they will be generalisable.” This evolution raises questions about the sustainability of the current income tax system.
Moreover, the Labour Party government may need to adapt its taxation strategy as automation replaces traditional jobs. A recent report from Morgan Stanley warns that the UK could face an AI-driven employment crisis more acutely than other nations.
Since the launch of ChatGPT, advertisements for entry-level positions have fallen by 35%, highlighting the immediate impact of AI on the job market. Observers are closely monitoring these developments, as the biggest ever change to HMRC income tax is expected ‘within five years.’
As the landscape of work and taxation evolves, the reliance on traditional income tax systems may soon be challenged, necessitating urgent discussions on how to adapt to a rapidly changing economy.
