National Insurance contributions, are actively hindering businesses' ability to recruit and train the talent needed to close the skills gap.

Key Insights from the report include:

• AI adoption and productivity gains: UK businesses anticipate that nearly half (48%) of their workforce will be using GenAI in 2025, with employees potentially saving on average 4 hours per week through AI-powered efficiency
• AI and Machine Learning in high demand: businesses identified AI and machine learning as the highest-demand skills for 2025, signalling a shift towards a more automated and data-driven workforce
• Job displacement fears: Almost a third (30%) of businesses believe that between 11-25% of roles will be replaced by Generative AI by 2025, with projections of 26-50% displacement by 2028. 3 in 5 reveal AI has either very much or completely augmented human work when it comes to customer service
• IR35 and Hiring Constraints: 35% of businesses expect to hire fewer people due to the rising National Insurance contributions, while 34% also believe that IR35 – which hinders using freelancers – is negatively impacting their ability to bring in the right AI skills
• Government inaction on skills development: over half (53%) of businesses expressed dissatisfaction with the government's support in addressing the growing AI skills gap, while 44% feel that the focus on future generations is leaving current workers behind
• Skills hiding in plain sight: skills tracking is fast becoming an integral tactic for identifying in-demand internal expertise. 87% of senior tech leaders say they think that skills tracking has helped them with upskilling employees, and even more interestingly, 38% said they uncovered ready-made AI skills internally from tracking skills

Despite widespread recognition of the need for upskilling in Generative AI, businesses are facing a growing set of obstacles when it comes to building the workforce of the future. The key barrier: a lack of flexibility in hiring and talent acquisition due to restrictive tax and employment policies, alongside a lack of understanding of the skills within their businesses.

Government policies undermining workforce development

The report highlights that IR35 – which was reformed in 2017 and fully rolled out in the private sector in 2021 – continues to disrupt the ability of businesses to tap into the highly skilled contractor market. According to the report, 34% of businesses believe that IR35 is impeding their ability to hire the right talent, particularly in high-demand fields such as AI and machine learning. Contractors and freelancers, who often bring specialised expertise, are increasingly deterred by the tax implications of IR35, leading to a shortage of skilled workers.

Plus, these exceptionally skilled workers who can assist in the Government’s plans to ‘make the UK an AI Superpower’ are now working outside of the UK where IR35 does not exist. Similarly, the rise in National Insurance contributions has compounded the hiring problem, with 35% of businesses stating that they expect to reduce hiring as a direct result. These policies are particularly harmful for companies needing to scale quickly to meet the demands of the AI revolution.

A call for change

UK businesses are calling on the government to take immediate action to address the mismatch between policy and the skills needs of the modern workforce.

Gigged.AI, CEO and Co-Founder, Rich Wilson said: “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 continues: “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."

Wilson believes there are three ways to ensure we have more AI talent in the UK:

1. Scrap National Insurance increases so companies stop outsourcing AI work outside the UK

2. Scrap IR35 Reform so companies can easily tap into freelance and contract AI talent that is currently having to work outside the UK (Mostly the US)

3. Create an internal mobility platform so all government departments can share talent and share the upskilling and displacement of jobs

Internal mobility: the key to bridging the skills gap

The report identifies internal mobility as a crucial strategy for businesses to tap into the existing talent pool. A third (33%) of open positions in the past year were filled by internal hires, with businesses increasingly using internal job boards and career development programs to address skills shortages. Yet, businesses continue to rely on outdated methods that businesses are not finding as effective as using a skills tracking software solution (73%).

Moreover, the report suggests that 26% of businesses believe their organisation lacks the internal capabilities to meet the demands of AI-driven transformation, and 31% do not have the budgets to upskill their teams. With businesses struggling to fill critical roles and keep pace with technological advancements, the need for a policy overhaul has never been more urgent.

Hung Lee, Curator, Recruiting Brainfood says: “It's one of those 'harsh but true' observations that most companies do not know what skills or capability they have within the organisation. This includes organisations who really should know, like professional services consultancies. 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.”

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