Startup Coalition, Onward, and the Tony Blair Institute for Global Change have launched “The UK’s AI Startup Roadmap” – a report discussing the challenges facing the UK’s AI startups and recommendations for the Government to address these challenges to ensure that startups succeed in the new AI age.

The overriding message of the report is that startups are key to the Government succeeding in harnessing the AI sector, with benefits including potentially adding £400 billion in economic value by 2030. However, the UK could miss out on these benefits and lose ground to other nations if the Government’s approach “disproportionately hinders the UK economy’s ability to adopt AI across other sectors or is complacent about growing the AI sector itself.” 

We summarise the report’s findings below; the key challenges facing startups and the policy recommendations.

Four key challenges facing AI startups

The report explains that the UK’s AI startup scene is growing. With 48 startups involved in cutting-edge generative AI, this puts the UK at the forefront. After months of discussions with startup founders about the challenges they face and what is needed to fix them, the report highlights four key challenges that have emerged:

  1. Access to capital. Raising funds remains AI founders’ top concern. While the UK is far up the rankings in global tech investment, European nations are making significant gains. Untapped potential funding from the pension market would be a vital means of increasing the capital pools, underlining the importance of reforming pension funds as committed to in the Mansion House Reforms. Cuts to R&D tax credits in 2022 have hurt startups promoting innovation, especially Deeptech and while the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) have historically been successful incentives, they need to keep pace with the times.
  2. Access to talent. Some founders argue that the pull factors that used to make the UK an enticing place to home their startups have lessened due to broader economic issues.  AI startups are struggling to compete with the US for top tech talent due to issues including salary levels and visa challenges. The visa system is not supporting the tech sector as effectively as it could be.
  3. Access to compute. Startups want access to cost-effective and readily available compute capacity. Government research shows that the UK went from third in global compute capacity in 2005, to 10th by 2022. Many of the UK’s AI startups have opted to build off existing AI infrastructure, such as via APIs or cloud infrastructure and want access to competitive, private compute options.
  4. Regulatory compliance. Despite welcoming the sector-specific approach to AI regulation set out in the Government’s AI White Paper, founders fear that the increased focus on AI safety concerns could create over-regulation that would “stifle the sector.” Regulatory sandboxes are seen as a key enabler of innovation and can boost regulator-industry cooperation. However, the AI White Paper’s 12-month timeline is regarded as too slow and there are concerns that this goal is likely to be missed as the Government has not kept to the timetable. They also fear that explainability and accuracy of models causes a trade-off and that a focus on explainability could cause models to be “dumbed down” and curb companies’ innovation.

Recommendations for the Government to address these challenges

To address these challenges, the report recommends that the Government implements the following steps as quickly as possible to “put the UK in prime position to succeed and cement its place as a global AI leader.”

Investment Recommendations

  1. Deliver on the implementation of Mansion House Compact- and go further.
  2. Renew EIS beyond 2025, review the Financial Health Requirement, and increase HMRC’s EIS/SEIS capacity to tackle bureaucracy.
  3. Reform R&D tax credits by creating one unified RDEC scheme, with a 30k de minimis threshold and 20% relief level (33% for Deeptechs).

Talent Recommendations

  1. Expand the HPI Visa to better target AI and startup talent, through a focus on bespoke sub-categories or entrepreneurial potential.
  2. Negotiate a reciprocal agreement with the US to add them to Youth Mobility Schemes.
  3. Clarify plans for the Global Talent Visa fix and simplify the endorsement system for the Innovator Founder Visas.
  4. Simplify the spinout system by reforming how TTOs operate and create a two-tiered model for university equity stake.

Compute Recommendations

  1. Grow the compute menu by increasing national compute capacity, getting better compute partnerships, addressing supply side barriers, and preparing for the next era of compute. 
  2. Create new R&D iniative for compute alternatives and develop new acceleration programmes for quantum technologies.

Regulatory Recommendations 

  1. Successfully implement the sectoral approach to AI by scaling up regulator capacity as quickly as possible.
  2. Work with regulators to issue AI-specific guidance for intermediary liability, digital competition, copyright, and more.
  3. Work with like-minded global partners to pursue international regulatory convergence post AI Summit.
  4. Accelerate regulatory sandbox plans and ensure introduction of central cross-regulator AI sandbox.

Conclusion

The overarching lesson is that as the Government develops its approach to AI, the tried-and-tested basics must be kept in mind. 2023 has been a defining year for UK AI strategy and startups will be key to the Government’s ambitions to harness the benefits of AI and to use the technology as an economic driver for growth. The report concludes that ensuring AI startups are central in policymaker’s minds will be vital in the years to come and the Government must nail the fundamentals: accessing capital through the lifecycle, hiring, and bringing the best talent possible, competing on compute and data infrastructure internationally, and navigating the regulatory environment. 

If you would like to discuss how current or future regulations impact what you do with AI, please contact Tom Whittaker, David Varney, Martin Cook or any other member in our Technology team. 

Related articles

Please see our articles “OECD paper on initial policy considerations for Generative Artificial Intelligence”,  ‘Navigating the EU AI Act: flowchart', ‘The Artificial Intelligence (AI) Law, Regulation and Policy Glossary’ and ‘AI regulation in the UK: Government White Paper published’. 

This article was written by Nicole Simpson