Can AI revive the state? AI and public sector reform under the UK Labour government

Pathologies within the UK system of governance has left the incumbent Labour government with formal power over decision-making but limited capacity to deliver policy. Executive dominance coexists with fragmented departmental competition, weak local government, bureaucratic duplication, extensive reliance on outsourcing and high levels of civil service churn, collectively constraining the government’s ability to address the persistently stagnant productivity and growth. Against this backdrop, the arrival of generative artificial intelligence has prompted renewed optimism in Labour’s policymaking community about the capacity of the latest technological developments to overcome these institutional constraints (Tony Blair Institute 2024). Proponents argue that AI-enabled tools could enhance administrative efficiency, improve cross-departmental coordination and personalise public sector services, thereby contributing to a more agile state capable of catalysing private sector investment. This techno-optimism is reflected in ministerial discourse, with the Chief Secretary to the Prime Minister, Darren Jones, framing AI and digital innovations as opportunities to ‘upgrade Britain’. In this context, this paper aims to examine how the Labour government is seeking to enhance state capacity and productivity through the AI Opportunities Action Plan (DSIT 2025), Modern Industrial Strategy (UK Government 2025) and the introduction of a Digital ID (DSIT 2025a). The analysis draws on interviews with policymakers in the Labour Party and senior civil service, documentary analysis of publications from the Department of Science, Innovation and Technology (DSIT) and participant observation at the Labour Party conference and DSIT select committee hearings. It is argued that the government’s approach can be understood as an example of ‘techno neo-statism’, a mode of statecraft that aims to harness innovations in AI and digital technologies to finetune and optimise state capacity, therefore reviving the centre’s capacity to implement its policy agenda. Whilst advocates perceive advances in AI and digital governance as opportunities to address the crisis of governance by reconciling the tension between the demands for a more active yet more streamlined state, techno neo-statism is unlikely to remedy the fundamental shortcomings of UK governance in the absence of additional institutional reforms. Department for Science, Innovation and Technology. (2025). AI Opportunities Action Plan. GOV.UK [online]. Available at: https://www.gov.uk/government/publications/ai-opportunities-action-plan/ai-opportunities-action-plan Department for Science, Innovation and Technology (2025a) Digital ID Scheme: explainer [online]. Available at: https://www.gov.uk/government/publications/digital-id-scheme-explainer/digital-id-scheme-explainer Tony Blair Institute for Global Change. (2024). Governing in the Age of AI: A New Model to Transform the State [online]. Available at: https://institute.global/insights/politics-and-governance/governing-in-the-age-of-ai-a-new-model-to-transform-the-state UK Government (2025) The UK's Modern Industrial Strategy 2025 [online]. Available at: https://www.gov.uk/government/collections/the-uks-modern-industrial-strategy-2025