"Why is the UK government so obsessed with this?"
Speaking as a civil servant, it is because they have nothing else to place their hope on to drive economic growth. Government fully recognise that UK growth has been declining slowly but steadily for fifty plus years, and that what growth there is hasn't been felt by the majority of taxpayers. Now whilst there's various contributors to that (rising taxes, complexity of taxation for business, offshoring of jobs, declining value of sterling) government don't want to address those - they'd rather reorganise local government and introduce ID cards. When they ask business why they are not investing business says "because you w******s keep on layering on more regulations, restrictions, and taxes". Government have thought what they can do, and in time honoured fashion it's not their fault. So they're demanding regulators reduce their demands on business and becoming more efficient, but with the starting premise is that government don't intend to remove any of the huge volume of shitty regulations sitting on the books. Regulators have said they're only doing what they were commissioned to do, under the acts of Parliament; so that means through PPE graduate logic, that everything will have to be solved by regulators becoming more efficient, and absent pay and incentives normal in the private sector it needs to be something else. Along comes "AI", and the hopeless lawyers, PPE grads of the cabinet seize upon that as a magic bullet.
So what you're seeing is a blame game:
"You naughty, naughty regulators, you're holding up growth!"
"We only do what you tell us."
"Well you're harming growth"
"Then you need to reform the law"
"No, we don't want to. If you were simply more efficient then none of this problem would exist!"
"We've spent years making sure that we don't impose major costs on business, what would you like to be different"
"I don't know! I've only ever been president of the student's union, it's not my job to come up with solutions. What about AI? I saw some great AI p**n the other day, that can do fantastic things, you should use that, it'll make everything better"
"So that's an instruction?"
"Yes".