It’s not the winter fuel payment fiasco and partial U-turn. Nor is it the failure to tackle our ballooning sickness benefits bill. Or the £8.5billion of “modest” tax rises that have already morphed into more than £66billion. Nor is it the the inheritance tax raids on farmers and small firms, and not even last October’s chaotic Budget. Those fade against her biggest blunder. Because something absolutely terrifying is now bearing down on Britain.

Artificial intelligence is advancing at breakneck speed and threatens to rip through white-collar Britain just as globalisation hollowed out blue-collar towns. Investment bank Morgan Stanley has warned the UK could be among the hardest-hit developed economies, given the size of our services sector. Analysts estimate up to a third of UK jobs have exposure to automation by generative AI, with finance, legal services, accountancy, marketing and administrative roles most at risk.

Unlike factory jobs, these are middle-class, graduate careers, the backbone of Britain’s tax base. Worse, displaced office workers may struggle to retrain quickly enough, flooding a labour market that simply cannot absorb them. So what’s this got to do with Rachel Reeves? I’ll tell you.

In the run-up to her first Budget in October 2024, Reeves was boxed in. Every obvious tax rise risked choking growth. Then came the “solution”: a £26billion raid via higher employer National Insurance contributions.

This is a direct tax on jobs. Companies pay a percentage of each employee’s salary above a threshold. Raise that rate or cut the threshold and the cost of hiring instantly rises. Reeves did both. From April 2025, every worker became more expensive overnight.

Deutsche Bank warned the move could cost 100,000 jobs. Other analysts suggested the figure could be double that. Dan Neidle, a tax expert sympathetic to Labour, said this was the worst possible tax to hike. Yet Reeves ploughed on. Just as technology was making it easier than ever for firms to replace people with software.

The labour market is already weakening. Unemployment has risen from just over 4% to above 5%, with forecasts pointing higher. Youth unemployment has climbed sharply, now outpacing Europe for the first time in years. Vacancies are falling. Hiring intentions are sliding. And now it's about to accelerate.

The Chancellor also pushed through above-inflation increases in the National Living Wage in both April 2025 and 2026. Generous? Perhaps. But employers foot the bill. They will respond by cutting hours, freezing recruitment or investing in automation instead.

Add in punishing business rates, rising regulation and Angela Rayner’s upcoming Employment Rights Bill, which will make it harder and riskier to dismiss staff, and the incentive to hire collapses further.

Now machine learning systems and generative algorithms are about to unleash havoc. This won’t just cost jobs. It could shake the foundations of the economy. If unemployment surges, the welfare bill explodes. Tax revenues slump. House prices weaken as buyers vanish. Rents come under pressure. High streets empty as spending power drains away. Prolonged youth unemployment scars earnings and prospects for decades.

Reeves isn’t to blame for the technology. But she is responsible for making human workers more expensive at precisely the moment firms are weighing up whether to replace them.

Labour claims to stand for young people. Yet by raising the most punitive jobs tax at the worst possible time, Reeves has handed companies one more reason to swap graduates for machines. AI is a profound economic shock. And like everything else she touches, Rachel Reeves has made it worse. It's shaping up to be an error of historic proportions.