TL;DR

The Institute for Public Policy Research has published a paper by Oxford’s Ben Ansell proposing a levy on the tokens AI models produce, capturing part of the value they generate as payroll tax revenue erodes. The paper concedes it only works with international co-operation, and sets out domestic fallbacks if that proves unreachable.

The mechanism, and its problem

A token tax would meter AI output at the unit of production and take a slice. Making it work means AI companies auditing their own token generation continuously and paying on the revenue that follows — which is where the difficulty begins. Frontier models are built mostly in America and China, so Britain would be asking foreign firms to run permanent audits for the benefit of the Exchequer.

Going it alone carries its own cost. The paper accepts that unilateral action would leave high-value UK service businesses using AI applications carrying a charge their overseas competitors avoid. Given the politics in Washington, the author treats co-ordination as unlikely in the near term and offers domestic alternatives: aligning capital gains rates with marginal income tax, and new levies on speculative activity including gambling and crypto trading.

Why the pressure is building

The token proposal sits inside a broader argument that Britain taxes work and youth too heavily relative to age and wealth. IPPR, which has close ties to Andy Burnham’s leadership team, calculates that demographic change accounts for close to four fifths of the extra fiscal strain arriving by 2075, with the over-65 share of the population climbing from 18% to 27% across that period. Pensions and care could add nearly a tenth of GDP in costs.

The intergenerational gap is already visible in effective rates: a pensioner’s marginal rate can reach 60%, while a younger graduate’s runs to 71%. A flat property valuation tax at 0.65% is also proposed, arriving as homeowners absorb the £2m wealth charge starting next year.

Looking forward

Notably, the idea is not confined to one think tank. Bill Gates told Reuters this morning he has been considering taxing the revenue companies earn from tokens that displace labour, to fund a safety net — the same instrument reached for independently on both sides of the Atlantic within a day. Ansell’s fallback if the token tax stalls is a levy on AI unearned rents. UK businesses should read this as an early marker for fiscal-event season rather than settled policy.