UK Think Tank Proposes International AI Token Tax to Bridge Fiscal Deficit

A UK think tank has proposed an international tax on artificial intelligence output targeting the tokens it produces to help bridge anticipated gaps in government revenue. Authored by Oxford professor Ben Ansell, the report argues that tax reform in Britain is increasingly unavoidable due to domestic ageing and the structure of the economy.

The Institute for Public Policy Research, which maintains close ties to the leadership team of Prime Minister Andy Burnham, stated that the UK tax system has become overly skewed in favour of age and wealth. To counteract the impact of jobs lost to automation, the report advocates for an international token tax.

“An AI token tax, to directly trap a portion of the value created by AI models,” Prof Ansell writes. Implementing this system would require consistent auditing of AI companies and international co-operation. Due to potential political obstacles in Washington and other regions, the report also evaluates several domestic alternatives.

In the short term, the report suggests equalising capital gains tax with marginal rates of income tax to help reduce the economic divide between older and younger generations. Additional measures include raising taxes on speculative personal behaviours such as gambling and crypto investing.

Implementing an isolated token tax could present challenges. The IPPR report warns that if the UK acted alone, it might face competitiveness issues as high-value service sector AI application users encounter taxes not levied on rival firms abroad. Furthermore, since frontier AI models are largely based in the US and China, Britain would face difficulties requiring foreign companies to engage in continuous auditing.

Population ageing is projected to account for nearly 80 per cent of the additional fiscal pressure facing the UK by 2075, according to the IPPR. The proportion of the population aged over 65 is expected to rise from 18 per cent in 2024 to 27 per cent by 2075, adding significant costs to state pensions, health, and social care.

To address these long-term demographic challenges, the report proposes shifting taxes away from younger workers and towards property and wealth, including a recommended valuation tax on property set at 0.65 per cent. If the token tax proposal fails, Prof Ansell suggests that redistribution through an “AI unearned rents tax” may become necessary to sustain consumption across the economy.