AI and Creative Technologies (Communications and Digital Committee Report)

Friday 13th June 2025 Lords Chamber

Motion to Take Note

10:10

Moved by

[Baroness Stowell of Beeston]

That this House takes note of the Report from the Communications and Digital Committee AI and creative technology scaleups: less talk, more action (2nd Report, HL Paper 71).

[Baroness Stowell of Beeston (Con)]

My Lords, this is the Communications and Digital Committee’s final report from my time as chair, so I not only thank the committee staff and my fellow committee members for all their work and contributions to this inquiry but extend my sincere thanks to all colleagues with whom I worked over the past three years for everything they have done so that, collectively, we have been able to produce some high-quality work that has had impact. Likewise, I am hugely grateful to the witnesses who appeared before us and submitted written evidence to all our inquiries. That is particularly relevant to this report on scaling up AI and creative tech, because we drew so much on the work we did in preceding inquiries, especially those on large language models, the creative industries and digital markets.

This debate comes at the end of London Tech Week, where so many of the UK’s fantastic tech founders have spoken or been in attendance. We have so much tech and entrepreneurial talent to celebrate in this country. From the off, I emphasise how proud I am of the innovators and risk-takers who set up on their own to establish a business and go on to thrive and achieve great success, even if they have had to experience more than one failure along the way, because if there is one message that landed powerfully with me during this inquiry it is that we do not say or do enough as political leaders to celebrate and support our risk-takers and wealth generators. They do not just generate wealth for themselves; they help our economy grow, create jobs and provide products and services that are valued by consumers and other businesses alike.

I cannot speak for Oxford Ionics, which was just this week acquired by a US rival—I offer my sincere congratulations to its founders on their success and all they have achieved—but I am genuinely sorry about its loss to the UK as a British business, even if, under new ownership, it continues to operate here. As I shall come on to explain, what we have seen this week is another example of a worrying trend. Our report described the UK as an “incubator economy”: a great place to begin, but too often it is other countries that get to cash in. If we are serious about growth and retaining our position as a global leader in the tech sector, this situation has to change.

Our inquiry on scaling up looked at the causes of this problem and what steps the Government must take to support innovative technology companies to grow into thriving British businesses that want to stay here in the UK. We focused on AI and creative tech because these are two areas in which the UK has strong foundations and significant potential, but many of our findings apply to innovative tech scale-ups more broadly.

This failure to scale is not a static problem. It is a dynamic and damaging cycle. When our most promising firms exit early or scale overseas, we do not simply lose their immediate economic value; we also hamper the formation of the kind of ecosystem that drives sustainable innovation. In the United States, successful founders reinvest their capital and experience into the next generation of start-ups. This creates a powerful flywheel of talent, mentorship and capital. In the UK, existing gaps in funding, expertise and confidence will only widen if we do not retain and champion our top entrepreneurial talent.

This is playing out already. London, I am sad to report, is no longer Europe’s leading technology hub, according to Dealroom’s latest Global Tech Ecosystem Index. A recent survey of founders by Tech Nation found that 43% were actively considering leaving Britain. We are also struggling to hold on to the few British tech companies that have scaled domestically. This week’s unicorn is not the only one galloping overseas. Alphawave, Wise and Deliveroo have departed to the US by way of acquisition or relisting this year. Unless we act decisively, we will continue to erode the foundations required for long-term global competitiveness. As much as the Minister will not welcome me saying so, the day-one rights and other measures in the Employment Rights Bill will only deter further UK tech firms from scaling and staying here.

We received the Government’s response to our report in April. While it was supportive of our findings, it was thin, pointing to a series of policy announcements due in the spring. It is now summer, and while the Government have shed light on some issues through their announcements this week, we are still in the dark on several others. I will address each of these in turn, and I have several questions for the Minister.

I start with funding. The UK’s lack of scale-up capital is the most important barrier that needs to be tackled. The Council for Science and Technology has highlighted improvements in early-stage investment, such as seed funding and start-up investment, but it has stressed that UK companies have been “starved” by a lack of scale-up funding. The Capital Markets Industry Taskforce identified a $30 billion gap between the UK and Silicon Valley for funding rounds of more than $100 million.

A lack of domestic institutional investment is part of the problem. Just 10% of Britain’s venture capital pool comes from pension funds. In the US it is more than 70%, and Canadian pension funds invest 15 times what UK pension funds invest in private equity and VC. The Government acknowledged this funding gap for scale-ups and pointed to ongoing pension reforms, such as the new Mansion House accord. That is welcome in principle. However, the push-back from pension funds against a mandate to invest in UK-based assets suggests that these reforms may not be a silver bullet. Personally, I am very nervous about mandating, but I also know that we cannot afford to wait years for pension reforms to trickle through. We must actively crowd in capital now. When will the Government’s initiatives result in tangible improvements in capital access for our most innovative firms? How are the Government making sure that voluntary commitments translate into real action from institutional investors?

The committee heard that another source of confusion for businesses looking to scale is the plethora of disconnected programmes and government grants available to them. This has arisen over many years and is not a new problem, but I have described it in the past as a kind of bowl of spaghetti drowned in alphabet soup. In our report, we recommended that the Government evaluate the impact and join-up of initiatives administered by UKRI and the British Business Bank in particular. I was therefore pleased to hear Tom Adeyoola, Innovate UK’s new chair, acknowledge that the current system is a hindrance rather than an enabler, and I welcome his ambition to bring greater focus to the agency because it is really needed. I was also relieved to discover, since our report, that the British Business Bank has retired its various sub-brands. This is a step in the right direction towards simplifying the schemes that were previously on offer, but the Chancellor’s welcome decision this week to increase the BBB’s financing capacity makes the need for a clearer strategy and a more coherent offer for scale-ups even more important. Can the Minister provide an update on UKRI’s review of its portfolio of funding and support to SMEs, which was due this spring? Can she offer examples of how the memorandum of understanding between UKRI and the BBB is creating a clearer pathway of support for scale-ups?

The Government promised us that their new business growth service will

“ensure a joined-up, coherent approach to the government’s suite of business support programmes”.

That would indeed be welcome, but I have concerns that this will instead become yet another thread in an already tangled web, and that is before we take account of the new sovereign AI unit announced this week. Can the Minister clarify how the business growth service will streamline the journey for innovative firms? Can she reassure me that the partnership between the BBB and the sovereign AI unit will truly put boosters on our emerging AI champions?

Our evidence was clear about the strategic importance of AI in driving innovation and growth across multiple sectors. The AI Opportunities Action Plan, which the Government published in January, was a good start. It set out ambitious proposals that match the scale of AI’s transformative potential, which have now been backed up by funding for delivery in this week’s spending review.

However, a plan is only the start. The Government must be laser-focused on removing obstacles to growth for home-grown AI companies. For example, access to compute was consistently raised in our evidence as a critical enabler for AI scale-ups. We heard that the Government’s decision last August to cancel investment in the Edinburgh exascale supercomputer left the entrepreneurial community deeply unimpressed. It was therefore good to hear this week that it will now receive £750 million of government funding, but the Government’s hokey-cokey on this issue has been damaging and means that we have lost valuable time. The Government promised in their action plan to expand public compute infrastructure 20-fold by 2030, with a long-term strategy published by the spring, but that strategy has yet to materialise. Can the Minister confirm whether it will be published before the Summer Recess?

Our report also emphasised that effective and agile regulation is crucial if we are to support innovation. However, we heard widespread concerns about confusion in the current regulatory landscape, particularly in relation to AI. We need proportionate oversight that gives confidence without stifling innovation or creating new barriers to entry. It is home-grown AI companies, not big tech incumbents, that will drive the innovation needed to realise the UK’s AI potential.

Open markets and open competition are essential to ensure that they have a fighting chance, which is why successful implementation of the Digital Markets, Competition and Consumers Act is vital. We welcomed the creation of the Regulatory Innovation Office, which has been nicknamed RIO, but we emphasised the importance of clarifying its remit and its interrelationship with other regulatory bodies. Unfortunately, those concerns have not yet been addressed, and the extent of its powers over other regulators remains unclear. I am pleased that the Government were wise enough to appoint my noble friend Lord Willetts as the chair of RIO, and I am delighted that he is speaking in today’s debate. None the less, as the person accountable to Parliament, can the Minister provide detail on how she expects RIO to drive behavioural change to boost innovation across sectors?

I turn to the createch sector, where two UK strengths—creativity and technological innovation—meet. For those not familiar with createch, it covers gaming but also visual effects and that sort of thing. The think-tank Erskine Analysis estimates that createch companies could generate up to £18 billion in additional gross value added over the next decade, with the right support. We found that the wider issues of funding and co-ordination are particularly acute for createch firms. The creative sector has suffered from poor investor understanding and a lack of specialised investment vehicles. In addition, various schemes administered across DCMS and UKRI have paused and restarted, leading to confusion and duplication. As I said before, that is not a new problem; it has been the case over a period of time. It is worth noting that, while the Government tout the creative industries as one of their eight key sectors, it was not mentioned once in the Chancellor’s spending review speech on Wednesday.

Let me add that I would never criticise Ministers, or indeed the Prime Minister, for meeting tech founders. That is good; it is when Ministers do not pay regard to other important sectors that trouble is caused.

In their response to us, the Government promised that all would be revealed in an industrial strategy sector plan for the creative industries and told us that UKRI would develop a new strategy for the creative sector. So when will either of those be published?

I cannot not mention the issue of AI and copyright. Unfortunately, despite admirable efforts by many noble Lords—I am pleased to see that the noble Baroness, Lady Kidron, will be speaking shortly—progress remains elusive. Now that Parliament has dispatched the Data (Use and Access) Bill, focus turns to the Government’s commitment to host industry roundtables. Clearly, these must be successful, but, for me, when they were announced, they elicited a horrible sense of déjà vu. I worry that the Government’s mishandling will have made the prospect of negotiations even harder. I hope I am wrong, because our inquiry made it clear, as did every inquiry through which the committee examined the issue of copyright in an AI world over the last three years, that innovation and creativity must go hand in hand, not toe to toe. The one thing all parties can agree on is that resolution of this issue is urgent.

In conclusion, the Government’s tone on many of the issues covered in our report is encouraging, but warm words do not scale companies and time is not on our side. While the Government consult and reorganise, the global market races ahead. Other countries are acting boldly, and we must do the same. We are doing a disservice to our strong start-up ecosystem and our brightest AI and createch companies if we do not support them to achieve their full potential and become world leaders on a global stage. And, my God, do we have the talent: GBx, a group that brings together Brits in Silicon Valley, is calling the British talent that dominates so much of the big tech based over there “power Brits”. We need those power Brits to want to be here in the UK.

The committee’s message was clear: we have many of the ingredients needed to make the UK a home for scale-up success stories. What we lack is action, and if we do not act soon we will be left only to dream of unicorns, never mind bemoan the ones that gallop away. I look forward to the contributions of all noble Lords during this debate. Some illustrious speakers are going to follow me, and I wish both maiden speakers all the very best.

[Lord Hamilton of Epsom (Con)]

Before my noble friend sits down, the problem with AI is that it uses astronomical amounts of electricity, and we have some of the highest electricity prices in the developed world. Does she think electricity prices are going to inhibit the growth of AI in this country?

[Baroness Stowell of Beeston (Con)]

My noble friend is right that the cost of energy in the UK is very much a deterrent to a lot of inward investment. It is not deterring them completely, but I was talking only yesterday to a very senior figure at Amazon and, as you would expect, he was drawing comparisons between us and France. I said earlier that London is no longer the leading tech hub, and according to one of these analysts the country that is really champing at our heels is France.

I beg to move.

10:27

[Lord McNally (LD)]

My Lords, I hope we will see the noble Lord, Lord Hamilton, here for the wind-up, because there is a wicked old habit in the House of Commons of intervening very early in a debate to which you have not put your name, so you are in Hansard but you can then be on the train home.

My thanks go to the noble Baroness, Lady Stowell, not only for her introduction today but for her chairmanship of this committee, of which I have been proud to be a member. It is the third such report that the committee has brought about under her stewardship, and it is a good example of how Select Committees can carry out programmes of work that are essential in working through legislation.

I am pleased to see the noble Baroness, Lady Kidron, in her place, and I look forward to her speech. This last week, which is coming to an end, has been a bit bruising. I have never been a fan of ping-pong; I do not think it is the best way of getting a resolution. We thought some 20 or 30 years ago—but you must not rush things in the Lords—that we should adopt the approach of the American Congress: when they get stuck on a piece of legislation, they appoint a joint committee with the task of bringing forward a solution.

I also share the wish of good luck given by the noble Baroness, Lady Stowell, to the noble Lords, Lord Evans and Lord Massey. My only caveat is that I see that the noble Lord, Lord Evans, has chosen a Yorkshire designation for his title, when he was born in Lancashire. Such apostasy is noted.

The noble Baroness, Lady Stowell, has given us a good start by looking forward and not brooding over the past. I am afraid that I have now reached the stage in my career where I do brood over the past. It is about 60 years since I first came to be interviewed for a job in the Fabian Society by the late Arthur Skeffington. I have worked in and around this place ever since. What struck me in preparing for this debate was that I was much inspired in my late teens and early 20s by two speeches. The first was John F Kennedy’s inaugural speech. He announced that

“we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe to assure the survival and the success of liberty”.

The second was Harold Wilson’s on 1 October 1963, when he called for a new Britain “forged in the white heat” of a technology revolution. I call attention to them today to draw a comparison between the upbeat optimism of a period when a US President could call on the best instincts of an outward-looking and generous-spirited country and the narrow self-interest of today’s incumbent. In the 1960s, we were still living in a post-war settlement made by that “never again” generation, but the very title of the report we are debating today, Less Talk, More Action, suggests a judgment on the Government’s strategy very far from the vision and sense of urgency contained in Wilson’s white heat of technology speech. The whole thrust of the report, and the dissection of it today by the noble Baroness, Lady Stowell, is to urge on the Government clear objectives and urgent decisions.

The challenge is clear. The changes now in train brought about by AI are as great and fundamental as those brought about by the first industrial revolution 400 years ago. Yet there is a worrying one-sidedness about the Government’s AI strategy, as they navigate a path between the tech firms’ freedom to exploit their technology regardless of any harm inflicted on the creative sector and creatives who fear for their livelihoods if the fruit of their hard labour is freely available for commercial exploitation.

Those fears are well founded, as the noble Baroness, Lady Stowell, reminded us. In the case of the creative industries, AI presents a real dilemma which needs a considered and rational response from the Government to a difficult question: how do we protect the intellectual property rights of creators while encouraging responsible innovation and investment in the development of AI? In this House during the passage of the Data (Use and Access) Bill, we tried very hard to offer constructive and workable solutions, but the Government have repeatedly demurred, and ping-pong, as I have said, is not the most efficient way of making progress on complex legislation. It does not help that the Government have during these debates increasingly given the impression that their main objective with that Bill is to convince not the House of Commons or the House of Lords but another house altogether—the White House.

In fact, the Government’s approach during ping-pong brought to mind the great Tommy Cooper in pulling various rabbits out of the legislative hat—none of which remotely resembled a rabbit that could reassure the creative sector. Nevertheless, one of these rabbits may yet have some life in it if, and only if, the Government demonstrate a genuine determination to arrive at a solution that is in in the interests of the creative industries as well as of the tech companies. I refer to the proposed parliamentary working group. One of the most constructive periods in a long parliamentary career was my time on the Puttnam committee leading up to the Communications Act 2003 and the creation of Ofcom. That too was also under a Labour Government with a large majority, but that Government showed their willingness to listen to a knowledgeable, cross-party committee making constructive recommendations, with an independent chair trusted by all sides. The committee must not be a fig leaf which the Government exploit to force through their own proposals in the face of opposition from the creative industries.

As I suspect we will hear later, this is not just about the creative industries. My full title is Lord McNally of Blackpool, and this morning I received a very persuasive brief from the mayor’s office in Blackpool on Blackpool and the Fylde coast’s bid for an AI growth zone. As well as the specifics of AI in terms of culture and creative industries, there is a real possibility of AI being used as an engine for growth. As the noble Baroness, Lady Stowell, warned us, it is an opportunity that if we do not take we will pay for it at our peril.

We need an imaginative regulatory intervention which satisfies both rights holders and big tech companies. I believe the Select Committee has played important part in informing this debate and this report sits well with its predecessors. It has been right in reminding us that AI is not a sector but a technology and that it must find its place in a coherent, cross-government vision that can drive innovation across all eight of the Government’s key growth sectors.

10:37

[Baroness Wheatcroft (CB)]

My Lords, we are here to discuss a really important issue. I am delighted that the noble Baroness, Lady Stowell, was able to secure the debate. As a member of the committee that worked on the report, I am indebted to her for her tireless efforts as chair of that committee—not just for all the behind-the-scenes work but for pulling together such a disparate group of people, often with disparate views, and bringing together something that I hope will be seen as really worth while. I also thank the staff who served us so well and made a positive contribution to our efforts.

If the country is to stand a chance of securing the growth it seeks, then the sector we are discussing today will be a crucial engine to get us there. The Chancellor of the Exchequer was absolutely right to say

“we want nothing less than to make the UK the technology centre of Europe. This is the path we need to take to create new jobs, new growth and new prosperity in every corner of our country”.

No one would argue with that. However, it was not Rachel Reeves who said this; those were the words of George Osborne, quoted in a 2014 report of what became the ScaleUp Institute. Ten years later, the ambition remains intact, but so do many of the problems that UK companies spotted then which prevented them fulfilling their potential and scaling up. Many of those obstacles apply to all sectors. There are some, however, that particularly afflict AI and the creative tech industries.

Writing 10 years after George Osborne, the noble Lord, Lord O’Neill of Gatley, referred to the “valley of death” that continued to lie in wait for too many of the companies which successfully start in the UK. We are still a wonderful country in which to start a business and our rate of entrepreneurship is second to none, but those companies come to an early end far too often. The noble Lord, Lord O’Neill, was penning the foreword to the latest report from the ScaleUp Institute. Although that report is positive about the achievements of the past 10 years, it acknowledges that many of the issues addressed in 2014 remain problematic now. The UK is an innovative developer in AI as well as the creative tech sectors—indeed, we are a leader in creative tech in many ways—but, as our report stressed, unless we can provide, quickly, the environment necessary to enable those companies to scale up, and with them many other businesses, they will leave.

As the noble Baroness, Lady Stowell, wrote and says now, we are in danger of becoming an “incubator” country for other economies that will happily take our talent and help them scale up. We took evidence from a wide base, including some really exciting and enthusiastic entrepreneurs. They were by no means unanimously critical of the environment they found themselves in, and their asks were not greedy. The loudest call, echoing that of a decade earlier, was the one that the noble Baroness, Lady Stowell, referred to: the spaghetti of different grants and apparent help that would be on offer if they could access it. Some of them told us that in fact they had to pay consultants to help them find a way through the morass of stuff that was on offer and, by the time that they had done the sums, it was just easier and more cost effective to manage without.

That does not sound like much progress on 10 years earlier. We are assured that the British Business Bank is on the case. I am not a cynic; I like to believe it is. But—I think like most of us—I would like to see the evidence. So I will withhold my judgment until I can see the road map that will enable an ambitious AI company or a creative tech company to know just where it should go to access, at one step, the help that it needs to become a growing business. The unicorns, as we have heard, are escaping the country, and we cannot afford to lose them.

To help along that journey, I think that specialist hubs are the answer. We have heard about this in the past. I hope that the Minister will be able to tell us a little more about how these hubs are taking shape. At their best, they should be the answer, providing not just information, mentorships and the sort of mutually supportive ecology that we need but the compute that is required. It may not be on the scale that we have heard in the past, because some of the AI companies are capable of being very efficient in their use of AI. If we look at what is going on in China now, we see that the compute required is a fraction of what we used to think was essential. Nevertheless, putting things together in specialist hubs around the country will not only spread the gains but spread the pain.

I hope we will be able to hear more about that. We are waiting for the latest incarnation of the Government's industrial strategy. As ever, more detail would be much appreciated—as much as the Minister can give us today. Specifically, AI needs to be assured that the Government will not go backwards and forwards, as it did on the Edinburgh scheme. Without wishing to venture too much into territory that has caused such pain, as the noble Lord, Lord McNally, referred to in some detail, the issue of copyright hangs over the AI sector. If our specialist AI companies are to thrive, they need to know exactly what environment they are working in and what they are going to be using.

Any uncertainty is a deterrent to investment, and so it is with uncertainty over the future for fundraising and the exact proposals on pension funds. Personally, I share the qualms of the noble Baroness, Lady Stowell, about dictating where pension funds should invest my money, but the idea of putting funds together to give them more clout and therefore spread the risk means that they should be capable of investing a little more in UK companies and more risk-taking ventures.

Creative tech has different issues, however. There needs to be a broader understanding of what a large industry this is and how highly the UK is regarded in it internationally. A deeper appreciation of the value of special effects in theatre and movies, for instance, would have a very special effect on investment in that sector, where we are still a leader. The difficulty in keeping talent is a common refrain among tech companies. Higher salaries are part of the draw, but not everything. An appreciation of the value of wealth creation needs to be filtered through from an early age in this country. This is Money Education Week, and I would like to think that one of the spin-offs will be an understanding that wealth creation spreads among the population; it does not just create people who are going to spend an awful lot on handbags and so on.

Another reason why enabling companies to scale up in the UK is so crucial is to spread the wealth. Making employee share schemes generous and deep is another way that can help to do that. I would like to hear more from the Government about how they propose to make everyone a shareholder, or at least an investor, in the company in which they work. It has long been a discussed ambition in this country, but it does change attitudes. So I hope that we will hear something positive from the Minister today. I am not downhearted. We have the talent; we just need to channel it a little more effectively.

10:46

[Lord Massey of Hampstead (Con) (Maiden Speech)]

My Lords, it is an honour and a privilege to be making my maiden speech in this House on this important issue affecting our country and, indeed, the growth agenda of the Government. I begin by extending my thanks to Black Rod, the Clerk of the Parliaments and the doorkeepers, who have eased my entry into this House with a combination of helpfulness, friendliness and great professionalism. I also thank my two supporters, my noble friend Lord Harrington, who was at university with me and has been a great friend ever since, and my noble friend Lord Polak, with whom I have enjoyed two decades of happy collaboration at CFI.

As a Hampstead-born lad, I have always remembered that my grandparents fled Odesa and found refuge in this great country. I met my Venetian wife, Fiorella, at 15 years of age at school here in London. We have been happily married for over 40 years and have three wonderful children, Lucie, Edward and Eloise. I arrive in this House as a lifelong Conservative, having started my political journey in the summer of 1978 as a research assistant to Peter Walker, later Lord Walker of Worcester, who many in this House I am sure will remember. Some 44 years later, I had the privilege of serving as the chief executive of the Conservative Party under the leadership of Rishi Sunak and Kemi Badenoch. I am honoured now to become a parliamentarian amongst you and look forward to making my contribution and serving the vital work of this House.

In parallel to my political interests, I have been involved in the financial services sector for over four decades, working in fund management and capital markets. I worked at a large global financial institution for 20 years, but subsequently founded a smaller financial firm, so—unusually perhaps—I have led businesses at both ends of the scale in terms of the size of the companies. My experience as a business owner and entrepreneur has taught me to recognise the importance of smaller companies, and I am keenly aware of the challenges that they face. I declare my interest as a director and shareholder in financial services companies, as stated in the register.

The current debate on how to scale AI and other creative British technology firms is indeed critical to the future of this country, as other noble Lords have said. As the study says, if we do not play to win, we risk becoming also-rans, which could damage our long-term growth prospects. The committee, under the chairmanship of my noble friend Lady Stowell, has done an excellent job in collating all the evidence and articulating a clear set of recommendations. Given my current roles as chairman of a small capitalisation asset manager—an asset manager of small companies—and chairman of a capital markets firm specialising in AIM, the junior market of the London Stock Exchange, I want to focus on two of the recommendations: accelerating financial reforms and championing entrepreneurial success, as my noble friend mentioned.

Tech firms in the UK are experiencing real difficulties in accessing capital from our public markets. The first issue, I am afraid to say, is one of increasing regulation that has beset our industry since the crisis of 2008. The FCA, like the rest of the Civil Service, has grown extensively since then, and its rulebook now extends to over 10,000 pages. Since 2022, the number of employees has expanded by over 30%, from 3,800 to 5,000, a growth rate which greatly exceeds the growth of the industry it regulates. Leaving aside the huge costs of regulation, the role of the regulator, while well intentioned, has had a suffocating effect on the industry, particularly on smaller companies, which constitute the engine room for AI and creative tech.

An example of this suffocation is the story of the decline of equity research over the last decade. One of the many legitimate complaints of the tech sector is that there are now few analysts covering small cap companies on AIM. They are right, as the evidence shows that for companies of under £500 million, there are four analysts covering a single company in the US but only one in the UK. This lack of research has a direct bearing on private and institutional demand for these equities and is the result of an EU rule brought in in 2014, as some noble Lords may recall, called MiFID II. This was designed to protect retail clients and provide transparency for institutions, but it has instead rendered much equity research uneconomic. This leaves the private sector less informed on public companies and reliant on the internet or non-independent research. The irony here is that the intention was to protect private investors from research that they might not understand, but in practice the result is a dearth of research and consequently less investment in the sector.

This needs a total rethink. The chief executive of the London Stock Exchange, Dame Julia Hoggett, put the situation very well:

“We also need to rebuild our risk culture in the UK. Since the financial crisis, UK markets have become known for their focus on managing downside risks—often for good reason. But taking an appropriate amount of informed and rewarded risk is an inherent part of well-functioning and liquid capital markets”.


Somehow, we need to reintroduce this culture into our country.

One of the side-effects of this risk-averse culture is, of course, that as a country we fail to eat our own cooking. While US pension funds invest 40% of their assets in domestic equities, the comparable figure for the UK is only 4%. The argument that the UK constitutes only 3% of the world’s index simply does not wash. Australia, for example, invests 24% of its pension assets in its domestic markets, yet it represents only 1.5% of the world index. In order to restore the vibrancy of our markets, another vital step must be to actually invest in our own companies, both listed and unlisted, and the Government have been across this. They have followed up the Mansion House compact introduced by Jeremy Hunt with the Mansion House accord, and I welcome the announcement this week of the British Business Bank investing a further £2.5 billion a year in start-ups and scale-ups. This is indeed welcome news and will potentially get the ball rolling again, although clearly a huge gap still remains.

Another way of stimulating domestic demand for UK equities is to use the tax system to create incentives for investors and founders to deploy capital and stay the course in the medium to long run. The Government raise funds from private investors very successfully in the gilt market. One reason for this is that gilts and other sterling corporate bonds are exempt from capital gains tax. This has been highly effective and leads UK investors to prefer sterling bonds over other countries and other currencies. Why do we not do the same with AIM stocks?

My suggestion would be to introduce this after a holding period of, say, five years. This would incentivise entrepreneurs and investors to take a medium view and look to scale up in the UK. If the cost of this is too great, then tapering should be considered where the rate of CGT falls in line with extended holding periods. This measure would echo the capital gains tax regime introduced in 1998 by the Labour Government, where, after a holding period of only two years, capital gains fell to 10%. Indeed, this was the incentive that, in part, led me to leave my well-paid corporate job to found my boutique in 2004.

The other measure that has been mentioned is stamp duty at 0.5% charged on buying UK shares. It costs 0.5% to buy British Telecom, but not for Deutsche Telekom. Does this make sense when we want to promote UK equity ownership? It is time to act decisively and boldly if we are to arrest our relative decline. The opportunity is substantial and we are indeed getting on the front foot, but I urge the Government to focus on countering risk aversion among regulators and pension funds and to create incentives for entrepreneurs to start businesses that can be scaled and become significant in the UK.

10:57

[Lord Willetts (Con)]

My Lords, I congratulate my noble friend Lord Massey on an excellent maiden speech. The maiden speech in this House is an opportunity to introduce oneself to many Peers, though I have to say that, looking around, several of us have known my noble friend for almost 50 years. I remember that he was involved in university politics, as I was. He, of course, was much better at it than I was: the stars were my noble friend Lord Massey and, if I may say so, my noble friend Lord Moylan. After that, we worked together as parliamentary researchers. He was researching with great skill for Peter Walker, and I was researching for Nigel Lawson—a reminder of the wide range of political opinions that the Conservative Party embraces at its best. After that, he made his career in the City, joining as a trainee and becoming the CEO of a major City company. All of us in this House look forward to the benefit of his expertise and understanding of financial services, as we have heard already this morning.

I also congratulate the noble Baroness, Lady Stowell, on an excellent introduction to a very important report, and I should declare my interest as chair of GenIP, a company applying AI, and as chair of the Regulatory Innovation Office. This report that we are considering is in many ways one report in a trilogy. It follows on from an excellent report by the Science and Technology Committee on engineering biology and it will be followed by a further report from the Science and Technology Committee specifically on the scale-up challenge. I think those three reports together are likely to contain a single very important shared message about the scale-up challenge facing the UK. It is absolutely right that we are very good at those early-stage start-ups but not so good at funding companies as they grow. That is the challenge.

The analysis in the report is striking, and I will draw attention to some features. Sometimes, we have a soft spot for SMEs and small businesses as a group. What the report focuses on is not the SMEs which—for perfectly legitimate reasons—are stable and operating at a certain scale with no great plans to grow; it is the gazelles, the rapidly growing companies, that really matter, and they can be counted in the low tens of thousands. In other words, this is a manageable challenge. We are not talking about 5 million SMEs; we are talking about 10,000—perhaps 20,000—high-performing, high-growth companies. It should not be beyond us to construct policies that support that crucial sector of the British economy.

There are also very trenchant observations about the City and financial services. We have already heard some observations on that from my noble friend Lord Massey. Having worked on trying to get investment into technology start-ups in different ways, I think it was best summarised for me by someone who said, “If you are trying to raise money for your technology start-up in London, take your chief finance officer; if you are trying to raise the money in New York, take your chief technology officer”. The Americans wanted to understand the technology, and that is what excited them. For the Brits, it was all too often a matter of wanting to know about the cash flow forecasts three years out—which are invented figures when you are at the cutting edge of new technologies.

That is where the culture change is needed. It is a very significant challenge because early specialisation in our education system is one reason this happens. There are lots of people taking powerful, commercial investment decisions in the City of London who stopped studying sciences at the age of 16. They are less comfortable with these sorts of decisions than American investors, who have often, in the course of a far longer American higher education—we have the western world’s youngest graduates—studied sciences alongside an MBA or finance. That equips them for these decisions far better than us.

The fundamental challenge is how we can grow the start-ups to scale up and beyond. Here, of course, the VC community functions very differently in the US and the UK. The VC community in the US is a mechanism for putting more money into these companies so they grow to be very substantial. All too often, the VC community in the UK is putting in sufficient money to get a good sale price when they are sold to a far larger US company. As one American investor said to me, “The great advantage of the British system is that you grow the world’s best corporate veal”. They will turn it into beef, but we grow the veal. What can we do about that?

For me, the worst two missed opportunities were Solexa and DeepMind. Solexa was the world’s leading genetic sequencing technology company, which was sold to Illumina. DeepMind was a world leader in machine learning and was sold to Google. It is easy to stand back and criticise the investor. If you ask Demis Hassabis why he sold DeepMind to Google, however, he would say that to carry out the functions of DeepMind, he needed about $1 billion a year worth of compute capacity. There was no way that the UK—either in the public or in the private sector—was going to have the resources to deliver that amount of compute power. The report is absolutely right on the importance of investing in more powerful computing, and from the public spending Statement earlier this week, it sounds as though that is finally happening.

I have concluded from stories like Solexa and DeepMind that the minimal, most modest and reasonable objective for public policy should be to support these companies effectively for a sufficiently long time. That way, even if they are eventually sold to the Americans, their roots in the UK would be deep enough that it would be a rational decision from an American corporate owner not to shift all the activities to the west coast but to keep them functioning in the UK. It is at least good news that we still have a world-class centre of genetic sequencing in Cambridge and that DeepMind is key to the Knowledge Quarter in King’s Cross. That is the minimum we should aim for, and that itself requires public support for these companies going on for far longer than we have often been able to maintain.

We sometimes think that America has a better risk culture than us, but often, if you look behind the Jeffersonian rhetoric, you find a Hamiltonian state which, through federal agencies and state support, funds their technology start-ups for far longer and far closer to commercialisation than we purists in the UK who stop the public support too soon.

As chair of RIO, I should briefly comment on the report’s section on RIO. I have been chairing the Regulatory Innovation Office for three months and I report to Ministers, who are accountable to Parliament for our work. The aim of RIO is quite simply to tackle the obstacles that stand in the way of the successful development of new technologies and innovation. We have been set some priority areas which are not permanently fixed, and we can move on and add new priorities. At the moment, our four priority areas we are working on are: drones and other autonomous systems; space, particularly but not solely space launch; synthetic biology, or engineering biology as it is sometimes called; and, most revenant to this debate, AI. We are not trying to cover all of AI; we are particularly focusing on AI in medicine and healthcare.

We are trying to make progress, but often you find that, because these are general-purpose technologies, there is no single regulator involved. When you are dealing with a general-purpose technology, it is quite a sensible approach to say that a regulator will focus on a particular use, rather than having a single regulator for all the different ways in which a technology might be applied. Then, however, it is important that we try to bring the different regulators together; provide help for innovators and start-ups with a road map for how to find a way through; speed things up by regulatory clearance being simultaneous, not sequential, whenever possible; providing information about who does what; and perhaps have a lead regulator. There are lots of practical things we can do to help start-ups through this complicated regulatory environment.

While we are talking about complexity, perhaps I can finally, very briefly, comment on the concern about the complexity of the system, to which the noble Baroness, Lady Wheatcroft, has already referred. I fully realise there are so many different instruments and programmes involved. Behind it, there is a kind of logic, and I pay tribute to the Science Minister, the noble Lord, Lord Vallance, who is trying to bring this out and make a more coherent system out of it. There are research councils for upstream funding and small amounts of money for a whole range of research, including curiosity-driven research. Innovate UK is the next stage—I am sorry I am describing this sequentially, but it is a useful framework—providing grants for practical applied innovation closer to market. Then, you would hope that the British Business Bank can step in, and we need closer relationships between Innovate UK and the British Business Bank. After that, the National Wealth Fund comes into play. Those should be in a seamless route of support, from the earliest stage in the lab, right through to full-scale companies. I believe that the noble Lord, Lord Vallance, is actively trying to achieve that; I am sure his work will be informed by the excellent report from the committee.

11:08

[Baroness Kidron (CB)]

My Lords, I add my welcome to the noble Lord, Lord Massey. I also look forward to hearing from the noble Lord, Lord Evans. I thank the committee for its very valuable report, and for the determination of the noble Baroness, Lady Stowell, and her colleagues, not to split the interests of the creative, creative tech and AI communities but to try and see them as a unified whole. I really appreciated that.

It is hugely important, and the committee was right, to highlight the serious risk of the UK becoming an incubator only for foreign economies. Most importantly, the committee’s assertion that AI is not a sector but a technology is profound and so often overlooked. It is a technology whose impact on specific domains is hugely different. By failing to consider it domain by domain, we are failing to create opportunity for homegrown AI companies to dominate in specialist areas. We are also perhaps failing to consider its impact overall over the whole of society. I really did appreciate that.

My remarks are going to be about data. The report recognises that data will be central to the AI revolution. It usefully highlights both the lack of data for training and the view that more is not always more. Given that my views on the data owned by the creative industries are so liberally distributed across Hansard, I want to talk about two other datasets and make the case that it is not only cash and compute but valuing data that will support the committee’s objective of ensuring that the tech revolution is a success in the UK.

This week I received a message from someone privy to discussions about the plans for the national data library—a project that enjoys a great deal of support from Members of your Lordships’ House and that the Minister, in Committee on the Data (Use and Access) Bill, suggested made redundant the idea of designating certain valuable or sensitive datasets as sovereign data assets. I want to be clear: I believe the Minister at the time was hopeful that the issues of privacy, value to the public purse and democratic values that were integral to our concept of a sovereign data asset would be covered by the national data library scheme—same idea, different name. But my correspondent, who himself works in tech and is a serial entrepreneur, explained that currently the tech companies are heavily lobbying government to share NHS patient data in that context, on the promise of streamlining NHS bureaucracy. Sharing the entire UK population’s NHS data is an enormous decision and has privacy and cost implications, but possibly the key point for today’s debate is that it has profound implications for who, how and on what basis—and, importantly, in which jurisdiction—the benefits accrue from innovations, commercial products and services that may never have been created without the help of that dataset. This is a serious issue if patient records are shared with a UK company, but even more so if they are to be shared with a company headquartered overseas.

This bears similarities to an argument we have had for so many weeks: a concern that the Government are being primed to share something of deep personal importance to their citizens, which in this case is paid for by the public purse and in the other case belongs to other private owners, with the corresponding economic concern that British people may see little gain or, indeed, may have to meet the cost of accessing the fruits of their own data. My correspondent worried out loud that the Government were going to be hoodwinked out of a true national resource.

A similar debate is going on around the UK’s CCTV footage, which is also of enormous interest to AI companies. This trove—among the largest in the world—has many applications, one of which is the ability to model simulations on the management of large groups of people. It is undoubtedly of interest to the UK police, but once created as a product owned by a private offshore company, what is to stop it being sold to regimes across the globe? How would conflicts play out—whether in Los Angeles, Ballymena, Gaza or Congo—if those in charge had infinite scenarios from which to kettle protesters, arrest them or worse? Is that what we want to do with our precious data? If so, are there terms of engagement or is it, like the copyright debate, going to have no regulation, no powers and no upholding of UK values and laws?

More broadly, CCTV footage is some of the most valuable in the world because it shows people’s movement at vast scale. That is what is needed to train the model. If we think about it as what YouTube data is for Google, it is almost incalculably valuable. I was fascinated by the contribution from the noble Lord, Lord Willetts, and I wonder whether our data, as well as our funding, might be used to keep companies in the UK for longer.

Last week the Prime Minister confirmed that the Government have accepted all 50 of Matt Clifford’s recommendations in the AI Opportunities Action Plan. From copyright law to the data library and security issues, and even sovereign AI, discussions—in private—appear to be dominated by overseas interests. I hear constant cries from UK AI companies that they struggle to be heard, and I recall that long before the consultation on copyright was published, when I asked for a meeting with the Minister responsible for data, the Lords Minister said that he had nothing to tell me yet.

My second point is that rather than the excruciating process of missteps and ping-pong—which has not served people, Parliament or government well—if the Government had heard from a broader group of voices, or if parliamentarians had seen the draft consultation, they could have raised questions at a time that might have been more useful to all. How we share data has profound implications for our economy, our security, our national identity and even our political independence. During the passage of the data Bill, many of these issues were raised by noble Lords across the House, but the Government refused to consider them—so now we have a data Bill that looks over its shoulder rather than to the future, and the oft-promised AI Bill has been pushed away by another year. I ask the Minister in true earnestness: does she understand why parliamentarians are frustrated? We want to discuss AI in health, AI in education, AI in security and so on. Can she find a way for those in government to be more open to accepting the expertise across both Houses?

We need our data policy to benefit UK people and businesses. We need transparency from government about the deals it is making, because they all shape our economy, democracy and national identity. All the Government’s moves to improve skills, infrastructure and energy prices so that the UK AI community can thrive are extremely welcome, but on the issue of data we must have a bigger vision than offshoring the value of our data to overseas.

11:17

[Lord Evans of Guisborough (Con) (Maiden Speech)]

My Lords, it is a great pleasure to deliver my maiden speech this morning, and it is a particular pleasure and privilege to follow immediately the contribution from the noble Baroness, Lady Kidron. I have sat here in recent weeks and watched her make her points repeatedly, and they lose none of their strength for repetition. I hope that the Government are listening and that we will see some movement from them.

I congratulate my noble friend Lord Massey on delivering his maiden speech. There was a great deal of knowledge and detail there, and I am sure that he will make a good contribution to the House in future, as indeed I hope I will.

As it is my maiden speech, I would like to thank Black Rod, the Clerk of the Parliaments, the Garter King of Arms and the House staff who helped me through my introduction ceremony back in February. It is an experience I will remember for the rest of my life. My guests loved it and I can tell your Lordships that when you wear ermine, nobody can see you tremble.

I also congratulate my noble friend Lady Stowell of Beeston on bringing this report before the House today. We have known each other for over a decade, and the report is presented with all the care and attention to detail that I would have expected from her.

I continue to be grateful to the doorkeepers and the security staff here. I do not think a day passes without me consulting them on some questions, and they deal with them courteously and knowledgeably all the time. They always go out of their way to provide help. I have made it my business to wander the Palace, opening doors to find out what is behind them. On one occasion a couple of months ago, I encountered a security guard in the Committee Corridor upstairs. Instead of admonishing me for what I was doing, he offered me a quiz about the House and the location of various things here. I am disappointed to say that I scored one out of five, but it was one more than I would have scored back in January, and I hope that if I had that quiz now I would do considerably better.

Two Peers—two of my noble friends—gave up their time to introduce me and, although they are not here, I thank them now. My noble friend Lady Jenkin of Kennington has made a remarkable contribution to improving the representation of women in Parliament. I met her in 2005, when she founded the organisation Women2Win, which is dedicated to bringing more Conservative women into Parliament. I have given her some help with it over the years and I am very proud to have played a modest part in its great success.

I first met my noble friend Lord Jackson of Peterborough even earlier: back in 1990, when we were both contesting the London elections for different London councils. That was a tough year, but I am pleased to say that we both won our seats, and we have been exchanging notes and advice ever since, so it was a pleasure to be introduced by him in February.

That was not my campaigning debut, I have to admit. Back in 1981, I contested an election for the council of my sixth-form college. It was a relatively easy introduction, as there were six places on the council and only seven of us standing for election. However, I contrived to come seventh and was the only person to leave the count with nothing at the end of the process. The guy who won, in addition to having 100 votes more than any of us, also had a campaign slogan: “Vote for Rips and He’ll Kiss Your Lips”. He obviously understood the old saw that you campaign in poetry and govern in prose. He also understood that, sometimes, you make election promises without having any intention of keeping them at all.

I also thank my noble friend Lord Younger, my mentor. Any errors I make are my fault and not his; he has been very helpful for the last three months. I thank my Whip, my noble friend Lady Stedman-Scott, who has been hugely helpful; I think I have missed only one vote so far, so I hope I have been helpful back.

I also thank the Lib Dem Peer, the noble Lord, Lord McNally, for outing my origins in his speech earlier. I was born in Rochdale, Lancashire, in a suburb called Balderstone. It had been suggested by helpful people that I take the title Lord Balderstone, which, I suppose, would at least make me memorable. However, I have chosen to take Guisborough because that is the town where I grew up, went to school—and did not get to be a member of the sixth-form council. If it helps the noble Lord, Lord McNally, to feel better about it, Guisborough is not necessarily in Yorkshire. It has been, over the years, in Teesside and in county Cleveland, but I could see the boundary of Yorkshire from my window—a bit like Sarah Palin—and I hope that that is enough to qualify me.

My mother was a teacher. She inspired so many people when in that job and made a great difference. My father worked hard for local government; he worked in the environment department and in housing. For a while, he was the abattoir inspector. Fortunately, we did not have “Take Your Children to Work Day” at that time, although it might have been a character-building experience.

In 1987, I arrived in London to work. I worked for Royal Mail for 10 years, but it did not feel like enough for me. In fact, when I was in my car one day, I heard a politician on the radio speaking to a conference and people were applauding him; I believe it was my noble friend Lord Heseltine. I thought, “I could do that”, which was possibly a bit precocious at the age of 24. I volunteered for political service and served three terms at Waltham Forest Council, where I had the pleasure of working with the noble Baroness, Lady Brown of Silvertown, who I see here today. We were on opposite sides, and, occasionally, we had differences of opinion, but I had differences of opinion with quite a lot of people at that time.

One of the people I argued with was the council’s solicitor. He said to me one day, “I think you’d make a very good lawyer”. On the basis of this entirely unsupported statement with no evidence, I left my job and went back to full-time education. I was called to the Bar as a member of the Middle Temple in November 1997.

Something else happened in 1997 that was ground-breaking: the Blair Government arrived and created the Greater London Authority. Some of your Lordships may remember that the Government of London Act was the largest piece of legislation to go through here since the Government of India Act, and Members of this House all worked very hard on it. I spent four terms at the Greater London Authority, and over the years it has been a cornucopia of talent for Westminster to draw upon. I always see former members of the assembly here. I note the presence today of former members of our administration at City Hall: my noble friends Lord Ranger and Lord Moylan. Indeed, the noble Baroness, Lady Wheatcroft, made some contributions to our deliberations as well.

I am supposed to say something about the report before us today, so I point out that the growth of new technology is a key driver for the success of London and the wider UK. That is why it is vital that we respond to the challenges and opportunities in ways that maximise the benefits we can reap. Artificial intelligence, as the report correctly says, is a technology, not a sector. It has the capacity to affect every aspect of our lives. It has real potential to revolutionise the delivery of public services.

However, regulation needs to recognise the risks and the opportunities too. We love, as lawmakers, to design detail into regulation, but, after speaking to people such as the App Association and smaller providers of IT services, I argue that we should try to avoid regulating for products and regulate for outcomes instead. I recall from my time at City Hall a debate after Uber arrived in London. We found ourselves in the High Court trying to argue that a taxi meter and a mobile phone were the same thing, because that was the way the legislation was phrased. We should try not to do that, because the way things are moving now, we can get outflanked very quickly by the movement of technology. That is a problem we face throughout government in so many different ways.

It has been a wonderful journey to get off the train at King’s Cross in 1987 and, 40 years later, find myself standing here delivering this speech. Yet there is nothing unusual in that journey. I promise the House that every day—today, yesterday, tomorrow—people will be getting off the trains at London’s stations and off the planes at Heathrow, coming to our city with small suitcases and big ideas, and we want to continue to encourage that. They come here because London is a city of opportunities; it is a city of dreams. Technology is going to be at the core of the city’s success in future. We have a responsibility to promote technology and to build the economy for London, because a prosperous London will support a prosperous Britain. I commend the committee’s report to the House.

11:29

[Lord Ranger of Northwood (Con)]

My Lords, I congratulate the noble Lord, Lord Massey of Hampstead, on his maiden speech: it was very well researched. I am sure he will make a huge contribution to this House with his knowledge and detail.

I also welcome and congratulate my noble friend Lord Evans of Guisborough. The noble Lord, Lord McNally, outed him in terms of his place of birth and where he has chosen, but, obviously, after his speech, I would say that London should have been a designation, if not Havering and Redbridge. I have known my noble friend Lord Evans for the best part of the last 20 years. As he mentioned, a number of us—maybe a golden generation of politicians and administrators across parties—have taken that well-worn path from City Hall to this place. He is very welcome to have taken that path.

I do remember my time there, because it was intense. I had a transport brief, an environmental brief and then the digital brief: there were plenty of briefs from my former boss. When it came to looking for good guidance, a bit of political compassion and camaraderie, you did look to assembly members on your side for support.

There were various kinds on the assembly. We would sit around the mayor’s table and say, “Who can we talk to? Who can we get some sage guidance from? Who will give us that calm, measured warmth, and a sense of direction?” We were quite inexperienced and new to the role. The name of my noble friend Lord Evans would invariably be at or near the top of that list. He provided me with much guidance, time and patience. I look forward to him being in this House and providing that to us and many more through his measured, emotional and intelligent approach, as he has done throughout his career. I welcome him.

I acknowledge yet again the excellent work of the House of Lords Communications and Digital Committee, which was chaired with great dedication by my noble friend Lady Stowell. My only regret is that I was not part of this committee through her tenure in producing this report on AI and creative technology scale-ups.

I acknowledge my registered interests, especially my roles in the technology sector, specifically with UK AI businesses. I have spent the best part of the last 25 years working in the technology industry and consider myself to be still in the industry. I am vice-chair of the APPG for AI, and an angel investor in tech businesses.

We cannot help but be aware of the pace of both development and investment in the world that is awakening to the endless possibilities of AI. I will speak today through the lens of not just the creative technology sector, because, as the report recognises, the challenge of evolving our numerous innovative and successful scale-ups to full-blown global businesses is consistent across many industries.

As most of us recognise, the report states that we in the UK have many of the essential ingredients for scale-up success. I am acutely aware of this because it was the emergence of the start-up scene in London in the late 2000s that led me to persuade the then mayor to establish the first digital office for London. Working with the then Government, we set out to support the emerging creativity and innovation in east London with policies and interventions to attract talent and investment by ensuring that risk takers—the entrepreneurs and investors—felt the city was on their side, wanting them to succeed and wanting them to stay in London and the UK to drive both opportunities and economic growth.

The result was Tech City, as the ecosystem became known, which significantly transformed London’s economy and global tech standing. By 2013, Tech City had grown from 85 start-ups in 2010 to approximately 200 firms. Around 5,000 companies were located in the wider area, contributing to economic growth and high-value jobs by four years after that.

Since 2010, London-based tech companies have raised $5.2 billion in VC funding. By 2021, London’s tech ecosystem was valued at $142.7 billion, with 76,660 digital technology firms employing 590,000 people, representing 14% of the UK’s total tech firms. Tech City helped position London as the digital capital of Europe, with more than a third of Europe’s tech giants based in the city, contributing over £56 billion to the economy.

Tech City also fostered a vibrant start-up scene, producing 23 unicorns—tech companies valued at over $1 billion or more—by 2019, and with a combined value of $132 billion. Community initiatives such as Digital Shoreditch, Independent Shoreditch and Silicon Roundabout meet-ups, along with events such as, as we have seen this week, the still-growing London Tech Week, created a collaborative ecosystem for networking and innovation. The UK Government’s £15.5 million funding package from the Technology Strategy Board and the UK digital services index, launched in 2013, supported innovative businesses and benchmarked digital sector performance.

But these policies were then, and this is now. The successful foundations from the last decade need to be built on as we enter the AI age, because now we are in a global economic race, not just to utilise AI technology in all its forms but to own the innovations and host the businesses and associated support ecosystems of businesses and jobs that will reshape the economy and the jobs environment. As the report states, the risk we take by being uncompetitive in this race is that the UK will become an incubator economy for other nations, as foreign companies and investors acquire and hoover up our emerging talents.

Where would this siphoning off of business talent leave us? Apart from being an incubator, we would become an AI-receiver economy. Yes, we would utilise more innovative services. We will still embed long-term solutions and costly platforms across our industries and public sector, which will enable transformative change and efficiencies. But we will be getting only a small fraction of the value from the AI economic cake, for it will be those owners and nations where the businesses reside that will take the lion’s share of the jobs, investment and vast revenues and tax receipts. In effect, we will receive the services; they will get the revenue. That is not all bad, noble Lords may say. We may be able to live with that. But it is like saying we would be happy for nearly all our future energy supplies to come from other nations. Let us just mull over the geopolitical risks we have seen materialise in recent years and the impact on our energy prices.

In the age of AI, the large-language models, the datasets that feed those models, and the AI services that are developed using the datasets will have huge influence and power over nations, their people and even our culture and traditions. If cultural artefacts—the UK’s museums, history and libraries—are not available online to non-UK companies and LLMs, will that history, literature and culture still exist in a future digital world where the answer to your prompt is provided by an American-based model that does not know, does not have access or just does not prioritise its response based on sovereign accuracy?

This debate is about how we can encourage more scale-ups to succeed, but it is also about the future of our economy and much more. It is about the future sovereignty of businesses, LLMs, datasets and the online world that will influence and fundamentally create our future society. This is an issue of our sovereignty.

In case noble Lords feel I may be somewhat overdramatising the scale of the issue, let me share some of the numbers that demonstrate the state of play in the global AI market. According to research by Silicon Valley Bank, the UK remains a dominant AI hub in Europe, securing nearly $6 billion in AI funding last year, more than France and Germany combined. However, France is rapidly catching up, with Mistral AI emerging as the region’s leading LLM provider, having raised over $1 billion within one year of its founding. Meanwhile, Germany’s AI sector remains deeply tied to its industrial roots, where advanced automation is transforming its automotive and manufacturing industries. Further good news for us is that, since September last year, the UK AI landscape has experienced robust expansion. There has been broader enterprise adoption, the daily influx of approximately £200 million in private investment and a rise of 17% in the number, 34% in the economic output and 29% in the jobs among AI firms. That might sound impressive, and I am supportive of the Government’s approach and initiatives taken to push and support the sector, but let us gaze across the pond.

In early 2025, the US unveiled the Stargate project, a $500 billion AI infrastructure initiative in partnership with Oracle, OpenAI, SoftBank, Microsoft and NVIDIA, to name a few, aiming to create thousands of jobs and reinforce the US’s determination to maintain its leadership in the AI race. To date, according to PitchBook, US-based AI companies have attracted nearly $100 billion in funding, more than the rest of the world combined. The US has first-mover advantage in AI, driven by a combination of world-beating private sector companies, chip makers, hyper-scalers, cloud providers and dataset providers. Combined, all these companies provide the infrastructure that enables AI training and deployment at scale.

The race to lead in AI has become a defining part of global business competition. So, are we really in this race? Are we doing enough with our action plan, investment in compute and our growth zones to really compete? Will we be able to keep the scale-ups that will give us a chance to have a real stake in the global AI field economy? We can, but we must be bolder and more ambitious in how we attract and lock in the critical element that drives growth—private sector investment. Yes, the Government must do their bit, as the report suggests, to remove barriers to necessary infrastructure and resources, and must maintain their proportionate approach to AI regulation. But none of this will work without the investors, the risk-takers, the VCs, the capital markets, and the time is now. I appreciate that the Government responded to the report by stating that for some technology and creative companies, accessing the

“capital required to scale a business can be a challenge”.

This is the challenge.

I welcome the report and what the Government have done so far. But I strongly suggest that it is now time for the Government to get creative with a laser-like focus and do all they can to unlock domestic growth capital and increase the incentives for investment in the UK. They need to make our investment landscape and policies more competitive so that strategies such as the Delaware flip, whereby UK businesses restructure and relocate to meet the requirements of an attractive investment proposition put forward by a funding partner in the US, are not the best options for British entrepreneurs.

[Baroness Anderson of Stoke-on-Trent (Lab)]

My Lords, I would be ever so grateful if the noble Lord could bring his contribution to a conclusion.

[Lord Ranger of Northwood (Con)]

We need to build a competitive, sovereign-based, British-made, British-owned AI economy for the future.

11:42

[Lord Tarassenko (CB)]

My Lords, I draw the House’s attention to my registered interests as the founder director of Oxehealth, a University of Oxford spin-out which uses AI for healthcare applications and which will be looking for scale-up capital in the near future. I congratulate the noble Baroness, Lady Stowell, on her excellent report, which identifies the key issues with clinical precision and puts forward some possible solutions. I also congratulate the noble Lords, Lord Massey and Lord Evans, on their excellent yet contrasting maiden speeches.

I entirely agree with a sentence in the very first page of the report:

“It is homegrown AI companies, not big tech incumbents, that will drive the innovation needed to realise the UK’s AI potential”.


So I want to focus on the following question: do we now have the right conditions for the UK to develop its own sovereign AI capability, which I will define as having at least two homegrown AI companies, each worth £100 billion?

DeepMind has already been mentioned by the noble Lord, Lord Willetts. If DeepMind—generally reckoned to be worth $100 billion today—had not been sold to Google for somewhere between $400 million and $650 million in 2014, and if ARM, which is currently valued at around $150 billion, had not been sold to SoftBank in 2016, that sovereign AI capability would exist today. So the question can be reframed as follows: how can we, today, help successful UK AI companies scale up rather than be acquired by internationally owned companies such as Google and SoftBank?

All the evidence in the report points to the fact that there is no problem with the early stages of the pipeline. Nearly two-thirds of Europe’s unicorns are headquartered in the UK. As the report informs us, the UK has produced 20 AI unicorns to date, including four in 2023-24 alone. Just this week, however, as the noble Baroness, Lady Stowell, mentioned, three new deep-tech unicorns have been sold to US investors or companies, including Oxford University’s quantum computing spin-out, Oxford Ionics: three more to add to the list of those companies which will not scale up as UK companies.

As the report highlights, without significant scale-up capital from domestic sources, the UK risks being just an “incubator economy” for other nations. At the start of the scale-up journey—series B and C—the British Business Bank should be able to invest, and we heard from the Chancellor this week that its funding capacity is to rise by two-thirds to £2.5 billion per year. This is welcome news, but, as others have noted, the report highlighted that companies found it difficult to keep track of the bank’s 21 different programmes, and the restructuring of its offering cannot come soon enough.

At the other end of the scale-up journey—series D and beyond—raising rounds of £100 million or more cannot be done without institutional capital. UK pension funds manage more than £3 trillion yet invest barely 1% of this in growing domestic companies. US endowments typically allocate 5% to 15% to venture and growth equity and Canadian models between 10% and 20%. Given this evidence, I cannot see why the Government’s proposed reserve power to enable them to force pension funds to increase their investments in British companies and infrastructure should be seen as controversial.

Finance is not the only issue which impacts the ability of UK AI companies to grow; talent, regulation, data and compute also matter. I shall speak only very briefly about talent and focus on data and compute. I am all for expanding the global talent visa to attract highly skilled AI researchers to our shores, but I worry about the decreasing pool of home postgraduate talent. Further evidence emerged this week: UK students accounted for just 43% of the 25,000 enrolments for full-time postgraduate research degrees at British universities this academic year, compared to 51% in 2017-18.

The AI Opportunities Action Plan also called on the Government to

“identify at least 5 high-impact public datasets”

to be made available to AI researchers and innovators. However, the Government committed only to explore how to take forward this recommendation as part of DSIT’s work to develop the national data library. We have heard nothing about the national data library—apart from in the intervention of the noble Baroness, Lady Kidron, earlier—from the Government for the past few months, although the announcement of £600 million funding for the health data research service in April was very welcome. Delivering on the aims of that investment—a single, secure entry point to access aggregated, anonymised patient data—will not be a trivial matter.

The stakeholder map drawn up by Health Data Research UK shows 40—I stress 40—stakeholders on the map, and it says that it is a non-exclusive attempt to draw this map. Nevertheless, building on the existing guidelines for sharing patient data in secondary and primary care, a minimum viable product should be deliverable within a matter of months, not years. Does the Minister intend to discuss with her DHSC colleagues giving preferential access to this sovereign data asset to UK companies, with higher rates charged to any international competitors?

Turning to sovereign compute now, recent news is positive: investment into data centres and into exascale compute in Edinburgh, and the twentyfold expansion of the UK’s high-performance compute capacity by 2030. The report of the noble Baroness, Lady Stowell, recommended that UK AI scale-ups should be granted access to these facilities to catalyse commercial opportunities. Will the Minister confirm that it is indeed the Government’s intention to do so?

However, there is also a key lesson from DeepSeek: it has demonstrated the power of distillation. Training high-performance distilled large language models is now possible with just one or two GPUs. The ingenuity of DeepSeek has paradoxically led to several data-centre buildings in China lying empty. We do not have to copy the data-centre and hardware compute frenzy generated by US big tech companies. They are only part of the compute solution.

I chose my definition of sovereign AI capability arbitrarily, based on where we would be today if both DeepMind and Arm were still UK companies. Today, the UK AI ecosystem is thriving, even at the unicorn level. For example, we are world-leaders in the use of machine learning to navigate the complexities of British streets: not the straight and perpendicular roads of US cities navigated by Waymo and others. We are also world-leaders in low-cost hardware for machine learning, and in AI-generated video for enterprise use. If we implement the right measures on scale-up finance, enable privileged access to sovereign data and deliver the promised sovereign compute on time and on budget, I believe that at least two UK AI companies will reach £100 billion valuation within the next five years.

In our relationship with the big tech companies from the US, we will only ever be AI-takers. If we want to be AI-makers, the development of a sovereign AI capability should be the UK’s top priority.

11:51

[Baroness Fall (Con)]

My Lords, I echo others in welcoming the noble Lords, Lord Massey and Lord Evans, to the House and congratulate them both on their excellent maiden speeches this morning. I declare my interest as a senior adviser at Brunswick Group.

We meet today at the end of a week which, although it was BuildTech week, was really all about the spending review, but at least we get to revert to a discussion of tech scale-ups at the end. I congratulate the noble Baroness, Lady Stowell, and all the members of her committee on this very good report. Against a tough fiscal outlook at home and uncertainty abroad, I know that this group does not need to be persuaded that the question of how we scale up is not a niche issue, but core to the economic prospects of our country: for jobs, prosperity and the very growth which seems to elude us.

We are not alone in facing tricky economic headwinds. The geopolitical and geoeconomic context in which business operates is highly challenging and changeable. The only certainty is uncertainty: the worst possible investment environment. Just take President Trump’s tariff policy as one example. From its inception to so-called Liberation Day, we have seen a range of global tariffs first imposed, then partially suspended; a virtual boycott on China followed by a reprieve; and sectoral tariffs bobbing up and down. We in the UK cling on to our 10% as if it is a life raft. The US strategy remains unclear even to those in the White House. Is it a sort of global trade punishment or a vehicle to drive domestic policy? Is it to pay for tax reductions or to project a new industrial policy? Whatever the aim, the result is chaos; the only resistance, for now, is the bond markets; and business has to seek alternative supply chains and form new global relationships and alliances.

The fundamental dynamic for us is that we seek growth against an uncertain global outlook in an age of growing economic nationalism. The question for us, as nations turn inward, is that we need to focus on what our competitive advantage is. We are not a nation rich in raw materials; we are a nation of entrepreneurs and innovators. In other words, we live by our wits, not by our wealth. Just look at our record on start-ups, which others have mentioned this morning. London ranks as the second-best place for start-up companies, tied with New York city. As the committee’s report points out, the UK has emerged as one of the top three places in the world to invest in innovation. So it is to our wits that we must concentrate our attention, nurturing our unique talents, not allowing them to falter or, worse, get picked off by foreign investors. Many noble Lords have mentioned this this morning.

Yet, more often than not, that is exactly what happens. As the committee says so powerfully in its report, we are in danger of being an incubator nation or, as the noble Baroness, Lady Stowell, says, of bolting unicorns. From this week alone, the acquisition of Oxford Ionics by US quantum computing group IonQ and Qualcomm’s deal for chip designer Alphawave are examples of missed opportunities for the UK. Another example is that of Reaction Engines. This brilliant start-up, which emerged from some of the best tech engineers in the country, focused on revolutionary aerospace engines and was a thriving business for three decades, until it was forced to fold last year through a simple liquidity problem. We seem unable to leverage our home-grown creations into formidable businesses. Put simply, we find it hard to scale up. Just 1% of UK companies have reached scale-up status since 2012.

This point comes through loud and clear in the very good paper published this week by the Tony Blair Institute. From Startup to Scaleup examines in forensic detail the weaknesses across the cycle of a start-up journey and seeks solutions. I recommend it to noble Lords.

What can we do about it? First: talent. Attracting and growing talent is key. Trump’s America is pushing away foreign talent, and we should make the most of this opportunity to attract talent to the UK, looking at immigration policies and the global talent visa. At the same time, we must work hard to continue fostering talent at home. Secondly, universities really matter. Just look at the start-ups coming out of our great universities, such as Oxford Science Enterprises. We should focus on making sure that this excellent research can be commercialised, and we should take a closer look at our spin-out system, including IP rights. Thirdly: risk. We need to change our attitude towards risk—others have mentioned this—both as a society, in the way we view entrepreneurs and their inevitable early failures. and on a national level. We should be unashamedly focused on backing national winners, taking on more risk with our investments and giving higher rewards.

Fourthly, in the case of Reaction Engines we see how public money was needed at a critical moment, which could have paid dividends. The good news for our present Chancellor is that this is less about how much money and more about when we spend it—more wisely and at what time in the cycle. Fifthly, the Government have already made significant progress in modernising UK public markets, with reforms outlined in the listing review of the noble Lord, Lord Hill, but there is more to do and more to implement in that review. Sixthly, driving change across silos in Whitehall is notoriously difficult, as many in this House know, and requires political will and a powerful engine such as the Cabinet Office, the Treasury or even the No. 10 team to drive it.

Finally, do not be afraid to think big, a point that comes through loud and clear in the report. In response to the times in which we live, we must consider the importance of generating a global winning tech company. Just one of these tech companies would be a game-changer, not just in encouraging investment in other start-ups, but for our national prosperity, jobs and, ultimately, the projection of our nation’s power.

11:58

[Baroness Lane-Fox of Soho (CB)]

My Lords, I, too, start by welcoming the noble Lords, Lord Massey and Lord Evans, to this Chamber and congratulating them on their maiden speeches, and by congratulating the noble Baroness, Lady Stowell, on her masterful chairmanship of the committee and raising the profile of these vital issues at a vital time.

In the noble Baroness’s incredibly comprehensive introduction, she mentioned that it has been London Tech Week, as did others, and I feel as though this debate has chased me around the panels and interviews I have done over the course of the week. In fact, this issue has chased me over the last 30 years of working in the technology sector and building my own businesses. I am grateful for the opportunity to contribute now to what is such an important topic, on the back of such an important piece of work by the committee.

I agree that we risk falling into becoming an incubator economy, but the risk is worse than that, because it is broader and deeper. By not scaling our AI and tech businesses, we are not only not building the sector of the future; we also risk those businesses failing to impact on the other sectors of our economy and the wider economy in which they operate. I would like to dwell on that issue for just a moment.

We have had two decades of becoming a nation of start-ups. I think back to the late 1990s, when we would go to an entrepreneurial meet-up and be the only entrepreneurs in the room. People would move away from me at parties when I said that I was going to start my own business, thinking that I was truly bonkers for wanting to do so. Now, the culture has fundamentally shifted. As we know, many young people have one or two businesses alongside their own jobs, perhaps both as a necessity of these economic times and because of a sense of entrepreneurship’s excitement and vibrancy.

We know that many companies hit a ceiling. It is a problem for not just them but the wider economy. It is vital to recognise that these challenges are not confined to the tech sector. The struggle to scale is a persistent thread that runs through the entire economy. I see this as president of the British Chambers of Commerce, as well as from the multiple boards that I am lucky enough to sit on. I was also a founding trustee of the ScaleUp Institute a decade ago.

Despite record numbers of entrepreneurs, only 2% of UK firms reach more than £1 million in turnover over three years—just 2%. The scale-up rate among businesses has slowed dramatically over the past decade, with the proportion of firms expanding their workforce falling by 40% between 2012 and 2022. Obviously, this has profound implications for employment and the wider economy. It does not just reflect the barriers faced by individual companies; it also reflects that the wider business environment is not adopting innovation and technology at the pace required.

At the British Chambers of Commerce, we did a report on the digital revolution. Although the pace of change is accelerating, especially in high-growth sectors—as everyone in this Chamber knows—many firms outside those high-growth sectors are struggling to keep up with the pace of change. Poor digital infrastructure, patchy broadband and a lack of digital skills mean that too many businesses are missing out on productivity gains and a competitive edge. When tech and AI scale-ups fail to thrive, it is a warning not only about them but about our whole economy falling behind, not just in tech but in manufacturing services and beyond.

The committee’s recommendations are impressively comprehensive: consolidate government support; unlock capital; and foster a culture that champions ambition and risk-taking. I agree wholeheartedly. I would like, to use terrible tech speak, to double-click on three levers that I think demand even more attention: government procurement; international expansion; and business culture.

First, on government procurement, public procurement is a £400-billion lever—one-tenth of our economy. The new Procurement Act is a real opportunity to open up contracts to scale-ups and SMEs by cutting red tape, mandating prompt payment and letting local authorities reserve contracts for local suppliers. I have seen this at first hand from businesses I have been involved in, most recently as a board member of Multiverse. Government contracts are a hell of bureaucracy and difficulty; they just cannot be given priority while you are also trying to scale your business across multiple other planes. So, I deeply welcome this new legislation, but I would appreciate an update from the Minister on how the implementation is going and what the redress will be for companies if they feel as though the Act is not working in their favour.

We must make sure that we set ambitious targets to include UK scale-ups in procurement participation so that we are really driving UK innovation and British jobs. Just yesterday, at a London Tech Week event, as I was thinking about what remarks I was going to make, as if by magic, a UK entrepreneur with a medical technology business appeared in front of me to berate me for 10 minutes—quite rightly—about how a recent procurement process in the NHS had led to a US company being procured. I do not know the details of this—I am not naming the company—but it is, I think, indicative. A US company had been procured at a vastly increased cost because it was already a supplier within the system. Despite our British company being a star success, it was unable to compete; this really was a missed opportunity and unacceptable from so many angles.

Secondly, on international expansion, scale-ups are more likely than any other SMEs to export and to innovate—and to grow quickly when they do—but, as the British Chambers of Commerce has taught me, only 10% of British businesses export, and they are over 60% of our members. That is an interesting fact in itself. We need to encourage more businesses full stop to scale through innovation in trade, through trade itself and through expansion into other markets. We cannot ignore the elephant in the room: Brexit. Although businesses recognise the improvement in relations with the EU, we have taken ourselves out of the capacity to work in a digital single market, which has had a fundamental impact on our technologies’ ability to scale.

I remember, as a young whippersnapper, going into the French company that we were building at lastminute.com and being met with derision, pretty much. The French entrepreneurs thought—quite rightly, probably—“How can it possibly be that these two whippersnappers are coming in to take over our country?” However, it is so important that we encourage companies to scale through Europe and do not scare them with the complexity of bureaucracy that we are creating in front of them. We can expand in our own market, of course, but, to become truly global, we need to expand way beyond our own shores and to make that as easy and attractive as possible.

Finally, culture is one area that I really do feel I have lived over the past two decades. It is not mentioned in this report, but I hope that members of the committee will find it interesting to know that the Bank of England did research showing that 77% of British businesses would rather not grow than take on new financing to expand. What a missed opportunity. Although this report rightly goes hard on the capital sources and unlocking more from the Mansion House accord, as well as on many other issues that we have heard about in the contributions made today, we still have in our culture the issue of how we grow and expand.

This comes from multiple reasons. I do not have time to unpick them all now, but it is vital that we celebrate the successes we have and do not denigrate them. Success does not have to mean just creating more money for the individual; it can mean creating more prosperity for communities, for us all and for the wider society in which businesses operate. When I am travelling around for the British Chambers of Commerce, I meet all the time businesses that are pushing back into their community, building relationships with charities and, often, delivering things where services cannot. This is fundamental if we want to make sure that we have not just a prosperous economy but a prosperous society; we must celebrate this and not denigrate it or view it with scepticism.

I end by saying that, as noble Lords may know, I find myself in hospital frequently. I have the most extraordinary hip surgeon, who could not resist badgering me when I was recently in hospital again by telling me that he was trying to raise money for his incredible robotics innovation. He really is a world leader in this area—I will be quiet in one second—and he had to go to Florida to raise the £100 million that he needed. He did so in two meetings; here, 20 meetings had led to a commitment of just £100,000.

12:07

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in this debate. I declare my technology interests as set out in the register. It is also a pleasure to follow my friend, the noble Baroness, Lady Lane-Fox, who has done as much as anybody in this country over the past two decades for all the technology industries in her work both as an entrepreneur and as a visionary for what technologies can do—not least, public good.

I congratulate my noble friend Lady Stowell—and, indeed, all members of the committee—on this excellent report. I can also comment positively on the approach that she took when doing this report in having it not just as an isolated moment in time but as a series of reports, one building on another, during her time chairing the Communications and Digital Select Committee.

In my final initial thank you, let me say that I am grateful to our two maiden speakers. Both of them, not least my noble friend Lord Massey, gave us excellent perspectives and a number of excellent ideas for not just this current Minister but all HMT Ministers to consider; all were excellent suggestions that would really make a difference.

My comments on the Select Committee’s report could be quite short. I agree with pretty much everything in it and all the recommendations. It goes to the heart of the issue, which we have discussed certainly in my time here, over the past 12 years, and previous to that. We have a stunning start-up scene in the UK, with fabulous universities, great spin-outs and a very good seed funding model, but it all gets tricky when you get to the scale-ups. This report highlights the issues, puts the recommendations and, I hope, gives the Minister much to think on.

As my noble friend Lord Willetts put it, when it comes to Silicon Valley, nobody should be beguiled to believe that this is a great success of the free market. It is birthed very much from state intervention—intervention in the right way, to enable and to empower the crowding-in of private capital. I cannot improve on his perfect construction—Hamiltonian, not Jeffersonian.

This debate, like so many that we have had on artificial intelligence and other technologies, goes to the heart of an issue. Government and wider society often struggle, because it can be seen as “a part of” or as “sector specific”. As has been noted in this debate, AI is a technology. I go beyond that. It is a series, a set, a constellation of technologies, some yet to be brought into being. I gently suggest that part of the problem with the current narrative and with the Government’s approach is that AI is not seen as this constellation of technologies but, reductively, as just gen AI. Although important, that is but one part of this constellation. Time will tell, but I do not believe that gen AI will be either the most interesting element of AI or the one most likely to deliver anything that we would recognise as a return on investment.

How much does it cost to do an AI model—£500 billion, £5 million, or somewhere in between? The answer is complex. However, getting to grips with smart funding in the UK AI ecosystem and context gives us the best chance of solving this scale-up challenge. I suggest there are three elements we may want to consider in the overarching approach to solving this issue. The first is to consider principles rather than prescription. We give ourselves the best opportunity if we take a principles-based, outcomes-focused, input-understood approach to everything that we do in this space, with trust and transparency—the technologies are nothing without those—inclusion and innovation, interoperability of both the technologies and the regulatory frameworks around the world, accountability, accessibility and assurance. These are good principles for all approaches, certainly regarding AI. Perhaps the Government will consider putting such principles on a statutory basis. They are largely set out in the 2023 White Paper. Giving them statutory effect would only be positive in this mission, which we all need to focus so clearly on.

Secondly, we need a right-sized, agile, adaptive and flexible AI authority. Do not think “big, behemothic, do-it-all AI regulator”. It could be just a development of the role of RIO, so ably chaired by my noble friend Lord Willetts. It could be a coming together of RIO and the DRCF. Maybe it could be a new entity in toto. Although it is right to take a domain-specific approach—that is where the domain expertise lies—we need to assure those three core elements that any of us need when we come across AI, or indeed anything: clarity, certainty and consistency. Without a guiding mind or an agile regulator, how can we have that clarity, certainty and consistency of application? Whether we come across AI in health, education or defence, how can we be assured that we will be having a similar experience? The AI authority could be that champion of the principles, the custodian and a centre of experts, giving an efficient and effective solution to the current situation of various regulators competing for a scarce talent pool. How does the nation benefit if Ofgem, for example, gains a particular data scientist and Ofcom does not? We do not benefit as a nation, and nor does our AI ecosystem.

Thirdly, we need to thoroughly and finally smash the myth, the false dichotomy that recurs with tedious inevitability, that you can have either innovation or regulation but never the twain shall meet. All history—not least, recent history—tells me that right-sized regulation is enabling and empowering of innovation. Take the regulatory sandbox in fintech. A measure of its success is that it has been replicated in just under 100 nations around the world—a UK creation by a UK regulator. It was great to see the announcement earlier this week from that regulator, the FCA, in combination bringing forth the supercharged AI sandbox.

We know how to do this, yet we are not doing enough of it. We all know bad regulation. In no sense does that mean that regulation is, of itself, bad. Right-sized regulation is good for investor, for innovator, for citizen, for creative, for consumer and for our country. Right-sized regulation, structured in an agile way, can be our path to the future and those future technologies, however they may be and in whatever form they come into being. The Government rightly talk of growth. These sectors, deploying these technologies, are most likely to bring this growth to bear.

How are we to move from being an incubator economy, an incubator country, when it comes to these technologies, to putting the right support in place, having the right skills, putting the right funding and expertise in place, at start-up and certainly at scale-up, and at the right level to shoot at nothing short of the “unicornification” of the UK economy? That is because of not only the economic benefit that will flow from having unicorns but the role-modelling that having those companies in our country can do, and how that brings forward all levels of the developmental pyramid. We know how to do this. We can do it at pace and we must. We are talking of our data, our decisions and, if we get this right, together, our human-led, AI-enabled, AI-empowered futures.

12:18

[The Earl of Erroll (CB)]

My Lords, paragraph 154 made me think about what on earth I could usefully add to this comprehensive and very pertinent report. We were consistently reminded that the creative industries sector is made up almost entirely of SMEs, of which a high proportion are micro-businesses. I have spent most of my life working in SMEs and building them up. On the technology side, I used to write software and things like that. I was always involved in computing IT, trying to produce solutions for business, looking at practical applications of things and trying to develop solutions quite quickly. It is this application of technology that most interests me.

I agree with the noble Lord, Lord Holmes, that the most useful applications of AI will not be for writing nice shareholder reports, business presentations or applications for jobs. It will be for managing real-world, complex situations and applying huge amounts of data and information to get out what needs to be done and what reactions. You could use this for managing difficult things. It can also be used for analysing huge volumes of research if you do not have time to read it all and trying to make the links between the different bits of it. Here, the LLM stuff will help considerably.

I did a lot of work looking at IoT—the internet of things—a few years back. In fact, we produced a British Standard on data interchange for it, because the use from it came from when you combined information from different sources and sensors around the place to produce something useful for people. That has grown into an interest in digital twins, where you can mirror a real-world thing out there in a computer system and then use it to analyse what would happen if this happened, or what is happening right now and how you might respond to it.

I am about to have an involvement with the Connected Places Catapult, which is mentioned in the report. I think it is very important that we continue to support these places, because these are sources of innovation where lots of other people are putting in lots of ideas and things, and out of those have come some very useful things. The great thing about them is they have been consistent—they are still there.

One of the big problems that I have noticed—I will jump to it—is that there is always a plethora of grants, but they are there for a year or two and then disappear. There is no consistency, so you cannot plan for it, and things collapse as a result. The creative industries clusters programme is a typical example of that: just when it is working, I think the report said that it is being knocked on the head. What is the point of that? At government level, we always seem to ditch things just when they are showing success, and that needs to be changed. Sometimes, people have unrealistic expectations of what will come and how quickly. That is one of the big problems, because Governments, Civil Service priorities and departments change.

I have also got very interested in causal AI, because I realised we have large language models just chasing down word chains and putting them together, with no idea what they are looking at. There is no actual innate intelligence in artificial intelligence: it is just a very large neural network of transistors, and it does not work the way our brains do. It does not have any sense of empathy or history. It has no background, unless you have trained it, but there comes a limit to how much we are going to train it and whose learning we are going to train it on. I know that most of us think we are always right, and that is always the trouble, because we do not agree with how someone else thinks. That is part of being human. I am going slightly off on a tangent, but there are some limitations in AI there, and people need to be aware of them.

The point about causal AI is that a lot of this information coming from the big ones—Copilot, Gemini, ChatGPT and all that—may be drawn from anywhere. You just do not know what they have looked at. There are lots of things that are false, and that self-reinforce, out there on the internet, so it might come up with things in reports—particularly if you are relying on it for something—that would completely mislead. You need to be able to distinguish that. I have been involved with a company, Kaimai, as well as FIDO, which have been used on curated databases to try to extract data. We need to grow that using causal AI, because things change as well. You may have a good database, but stuff that went into it 10 or 15 years ago may be inaccurate by now—the world has changed. There are a lot of issues in there that people are not thinking of when it comes to these things.

On encouraging people to stay here and grow their businesses, why do we drive all our very successful people offshore with very high tax rates? At the moment, Dubai is doing very good business, and apparently quite a lot have gone to Italy since the great non-dom thing was re-echoed. People want to spend their money when they make it, and that keeps the economy going, because it keeps all sorts of other things going, such as expensive restaurants, people who make expensive goods and people who cater for all sorts of things like that. It also makes the place more interesting to live in: people want to be in the UK, or around London, because it is full of entertainment. There are all sorts of side benefits to keeping your people who are successful and not driving them away. This is quite apart from the fact that I get furious when I see our great successes swallowed up by large American corporations and watching them go offshore.

Sorry about this, but, typically, my device has gone to sleep—like me.

Another thing I think about is suggesting that we can get the pension funds to invest a certain amount of money and push them into doing it. Yes, that is a source of funds, but are the pension funds the best people to decide what is a good or bad investment? Their job is to try to make sure that—if pensions are not overtaxed yet again—you have some money to retire on, and to make sure that the money is there for you when you retire. I am not sure they are the right people to judge what to put money into. I am sure that someone will think of a good way around this, but we have to be very careful about horses for courses.

The noble Lord, Lord Evans, made a very good point about regulation stifling investment and research. That can happen a lot. Funnily enough, another thing that can stifle some of this co-operative approach, which we hit a bit back, is that some academics in universities really do not feel that commercial applications of their knowledge and learning is the right thing for academics to be involved in, and they would not co-operate because there might be a commercial outcome from it. I think that attitude is changing—I have not had anything to with universities—but I bet it is still alive and well in some places. Those sorts of attitudes need to be overcome.

Here is another thing we hit: although we were being funded by the Welsh Government for an innovative programme, we needed a good native foreign language speaker. It was in the early days, before these were called AI and LLMs. It was to do with formatted reporting and stuff. Could we get the work permit for them? Well, we eventually got permission to employ one person from abroad—they were an ex-student from the university, but we needed to get the ongoing work permit—but were not given the permission to apply for a visa. That was going to be another application, and more money. These sorts of bureaucratic things kill SMEs. We just do not have the time, energy or knowledge to get around them. We need to start thinking about that.

The noble Baroness, Lady Kidron, made a comment that data sharing is essential to get the best use out of it all, but there are huge dangers, as I have just been saying, about where that data has come from and what happens to it. If it is being used by some abroad to do all sorts of things, it can be hugely dangerous, even to our national security and other things like that. You never know—even the best people have something to hide and, if that comes up, you are opening people up to maybe a bit of blackmail or pressure. That is why I have been very cautious about government data sharing in the past. It is difficult: it is impossible to pseudonymise properly.

Anyway, with that, I think it is a brilliant report.

12:27

[Viscount Stansgate (Lab)]

My Lords, I am grateful to be able to make a short contribution in the gap. I congratulate the noble Baroness, Lady Stowell, and the members and staff of her committee on producing such an excellent report. I thought her opening remarks well encapsulated the issue we face. I also congratulate the two maiden speakers. They were of contrasting kinds, but they will make great contributions to the House in future, and I am sure that they both feel much better for having made them.

In some ways, this is a well-timed debate, with the comprehensive spending review on Wednesday; it would have been more helpful to have had it in the context of the industrial strategy that we are expecting, but that will come soon. I thought the report’s main thrust and conclusions have targeted something absolutely fundamental to the UK economy. There have been so many excellent speeches in today’s debate that I will recommend today’s copy of Hansard, because I think we should keep it to hand.

I came to make one point in this debate, and that is to connect it with others that are going on in the same way elsewhere in the House. I find that the noble Lord, Lord Willetts, who is not in his place at the moment, made exactly the point that I came here to make—that is part of the trouble of speaking at the end. I should add that we work together on the Foundation for Science and Technology, and in the declaration of interests I declare mine as president of the Parliamentary and Scientific Committee.

The point I want to make is that other debates are going on that directly bear on today’s. Take the House of Commons Select Committee on Science and Technology’s report earlier this year on engineering biology. That is an amazingly exciting area, which might in the future, for example, enable us to grow sustainable aircraft fuel and so on. We were world leaders in what was called synthetic biology a decade ago, and we are now losing our lead. When our Science and Technology Committee produced a report earlier this year, our title was Don’t Fail to Scale, which is very much in line with one of the themes of today’s debate.

My second example is about space. We now have a space committee looking at aspects of the space economy, which will be extremely important to the UK in future. There are many different ways in which space is vital to the operation of the UK economy. Some of the things already being talked about for the future include, for example, growing antibodies in space, which, because of microgravity, are of such pure quality that they could be immensely more effective when brought back to earth and used in medical applications. Companies of the future may develop along those lines and we will be making a terrible mistake if we do not support them and scale them up.

The opportunities that emerge are now being looked at by the Science and Technology Committee, which is my final example. We are looking at what prevents this country being able to take a stage further forward the wonderful start-ups, incubators and other things we have heard about today. That will be the subject of a debate when we publish our report. We have taken fascinating evidence from venture capitalists and, only on Wednesday, a high-ranking scientist from DARPA.

We need to understand what leads companies such as Oxford Ionics to take the decision it has and be a loss to some extent a loss to this country. The Government’s Mansion House reforms will be very important, and I was interested in what the noble Lord, Lord Massey, said about rebuilding our risk culture.

In conclusion, I hope that when we come to discuss the current report of the Science and Technology Committee, Members here today will come to that as well, because no matter what subtitle you pick—Less Talk, More Action or Don’t Fail to Scale—this is the central issue to the future of the UK economy.

12:31

[Lord Clement-Jones (LD)]

My Lords, it is a pleasure to follow the noble Viscount, Lord Stansgate, not only because of his enthusiasm but because of his concision. To pack all that into four minutes is quite a quite an achievement.

I declare my interests as an adviser to DLA Piper on AI policy and regulation, and as founder and co-chair of the All-Party Group on Artificial Intelligence. I congratulate not only the Communications and Digital Committee on the report but the noble Baroness, Lady Stowell, on her excellent introduction today and all the service she has given as chair of the Select Committee. She hit all the points.

The noble Baroness, Lady Kidron, mentioned the holistic nature of the report—the fact that it was both AI and creative tech. That is really powerful and has enabled us to have an excellent debate today. I agree that this debate should be required reading. We have covered a huge amount of ground.

I thank our two maiden speakers. I am pleased that they chose to add their expertise to today’s proceedings. Sometimes there are maiden speeches in debates and you wonder why on earth they have been chosen as the vehicle for a maiden speech; I do not think that any of us are in any doubt that the noble Lords, Lord Evans and Lord Massey, made very interesting contributions to today’s proceedings.

It was also a great privilege to speak on the same Benches as my noble friend Lord McNally. To hear his wisdom on these occasions is a great pleasure for me personally.

The phrase “incubator economy” really has stuck. It has helped to guide us through today’s debate and made the contributions that much sharper and more relevant. We are great at hatching ideas but also at watching them fly away to mature elsewhere. We can illustrate this with a number of examples, as noble Lords have done. When Arm chose to list in New York rather than London, we lost what would now be Britain’s fifth-biggest company. When companies such as Wise follow the same path, which it recently has done, the pattern becomes clear. This was epitomised by a City AM headline on Tuesday:

“Ouch: Three tech firms bail out of the UK in a single day”.


Many noble Lords have of course mentioned Alphawave, Spectris and Oxford Ionics—at the beginning of London Tech Week too; what an appalling time to have that news. The noble Lord, Lord Willetts, reminded us that this is of long standing, in terms of DeepMind and Selector as well. The consequences of this failure are significant: decreased global competitiveness, weaker economic prospects and a potential brain drain of talent, as the noble Baroness reminded us at the very beginning of the debate and the noble Baroness, Lady Lane-Fox, emphasised too.

The Government are putting great faith into AI adoption with the AI opportunities action plan and an industrial strategy with plans for eight growth-driving sectors, but, at the same time, we must break down a number of barriers that are holding us back. First, as we have heard from across the House, we have a significant funding gap for later-stage rounds compared to the US, which was called, very graphically, the “valley of death” by the noble Baroness, Lady Wheatcroft. As we have heard, UK pension funds manage over £3 trillion of assets yet invest barely a fraction of that in growing domestic companies.

We do have initiatives, such as the Long-term Investment for Technology and Science programme, and the British Business Bank has supported many UK unicorns. UKI2S, a public/private seed fund, has a proven track record, but the size of the funding gap remains immense. There is also, as the noble Lord, Lord Willetts, rightly mentioned, a recognised lack of technology expertise among institutional investors and, probably, as was mentioned by the noble Earl, Lord Erroll, among pension funds as well.

As the noble Lord, Lord Ranger, said, we are in a global technology race. Some 62% of UK AI firms identify skills shortages as a growth barrier. We are in fierce global competition for AI talent and our visa system is slow, laborious and costly. SMEs often cannot match big tech salaries and, although the scale-up visa exists, industry leaders say that it is not yet fast or cheap enough to meet the needs of rapidly growing businesses, especially in highly competitive fields like AI.

We have infrastructure issues too. As we heard from the committee, the withdrawal by this Government at the outset of £1.3 billion for AI infrastructure, including the Edinburgh supercomputer, sent exactly the wrong signal. As one witness to the committee put it, we have

“some really big gaps in infrastructure, compute and power”.

We also have the issue of regulation and procurement. The noble Baroness, Lady Lane-Fox, mentioned the government procurement rules that prevent smaller companies competing for government contracts despite government procurement being a potential driver of innovation. The committee heard that the Competition and Markets Authority is alleged to be harsh on internal roll-ups, where one British company proposes acquiring another British company.

What needs to happen now? Again, I thought the phrase “a manageable challenge” from the noble Lord, Lord Willetts, was very useful. Like the noble Lord, Lord Holmes, I also rather liked the Hamiltonian versus Jeffersonian approach. On capital, the National Wealth Fund’s £7.3 billion commitment is a start, but we need those resources deployed quickly and strategically. The Government are, it seems, taking action to unlock £75 billion through the Mansion House accord and have introduced pension fund reforms, but these will take several years to have meaningful impact.

I know that the Government listen to the Tony Blair Institute, which was also mentioned by the noble Baroness, Lady Fall. Its recent report recommends giving the British Business Bank and the National Wealth Fund

“clear, complementary mandates to deliver on the … government’s industrial strategy”.

Specifically, it says that the British Business Bank should focus on crowding in capital for the scale-up phase—series B to C—with its maximum investment cap raised to £25 million. Meanwhile, the NWF should act as a more capital-intensive direct investor, with a minimum investment of £25 million for late-stage—series D+—strategic assets. Can the Minister comment on the progress being made in defining the roles of those two institutions? The discussion from the noble Lord, Lord Massey, about capital gains tax in terms of AIM stocks was a very interesting suggestion.

The AI Opportunities Action Plan also stresses investment in talent. It explicitly recommends that the Government explore how best to address wider barriers, such as the cost and complexity of visas, which create obstacles for start-ups and deter overseas talent from relocating to the UK. We need a fast-track visa system for scale-ups now, not after another consultation. However, I accept the concerns of the noble Lord, Lord Tarassenko, that there is a falling number of UK entrants to courses.

On infrastructure, I welcome the £2 billion commitment in the spending review, and the Government’s promise to immediately double AI research capacity and launch AI growth zones for data centres. The compute strategy, promised for spring 2025, is already overdue and must deliver accessible resources to our universities, start-ups and scale-ups as soon as possible. However, I also accept the reservations of the noble Lord, Lord Tarassenko: we do not want to find ourselves investing in infrastructure when we can deliver what we need without the extent of that infrastructure, as DeepSeek demonstrated.

AI growth zones are being launched to accelerate data centre construction and infrastructure, with formal selection processes opening this spring, we understand. However, we need to tackle the environmental issues around them too. The noble Lord, Lord Hamilton—who is in his place, I notice—was absolutely right to raise that issue.

In order to scale up, start-ups need to overcome the diffusion problem, which refers to the challenge of achieving widespread adoption and market penetration for their innovations. This is impacted by a lack of access to digital platforms, which have quasi-monopoly positions. I am glad to say that Google and Apple are now under investigation by the CMA, and the outcome will be the acid test for whether the new digital markets regime results in access remedies that allow our start-ups to scale more easily.

On regulation, the Regulatory Innovation Office, under its very welcome new chair, the noble Lord, Lord Willetts, is promising, as part of its mission, to reduce red tape and help companies bring new products to market faster, but it must have teeth. Given that the AI Opportunities Action Plan aims to accelerate the adoption of safe and trustworthy AI across the economy, clarity, certainty and consistency of AI regulation for business is crucial. The Government have kicked a future AI Bill into longer, if not wholly long, grass. They talk of a sector-led, outcomes-based approach to AI regulation, but many of us have seen no detail of any proposals and believe that the minimalist approach being adopted is simply inadequate in the face of AI risks and the need for public trust. I entirely agree with the noble Lord, Lord Holmes, that good, outcome-based regulation is not the enemy of innovation. In fact, it can be the creator of interoperability and the driver of innovation.

We have discussed constantly, for what seems like several months, a significant issue for creatives: the use of copyright content for training AI models. I do not intend to say too much about this, but the Minister is only too well aware of the arguments being made. Given the Government’s recent failure to deliver clarity to the creative industries, the consultation on AI and copyright, the associated economic impact assessment and the technology report must provide clarity quickly, as must the working party. Our creative industries must have the transparency they need to ensure that they can thrive alongside the tech industries without being their victim. Where is the creative industries sector plan? Everything seems to be promised for late spring—I think we have a traffic jam somewhere in Whitehall. It will identify growth barriers, we understand, and outline commitments from the Government and industry to overcome them.

I have little time left. I share the reservations about the National Data Library, but also the promise associated with it, expressed by the noble Lord, Lord Tarassenko, and the noble Baroness, Lady Kidron. It could be a good sovereign asset vehicle, if it takes the right shape.

The committee’s report is entitled AI and Creative Technology Scaleups: Less Talk, More Action. It is not just a good title; it is an urgent instruction. Are the Government ready to match ambition with action? I very much look forward to the Minister’s reply but, as the noble Lord, Lord Holmes, said, she has been given much to think about.

12:45

[Viscount Camrose (Con)]

My Lords, I declare my interests in early-stage technology ventures as set out in the register. I thank my noble friend Lady Stowell of Beeston for securing and leading this important and timely debate. I felt genuinely sad to be reminded that she will no longer be chairing this important and effective committee. I also congratulate warmly my newer noble friends Lord Evans and Lord Massey on their maiden speeches. I thought they were interesting, well argued and wholly well constructed for this debate that has been uniformly outstanding.

The noble Lord, Lord McNally, rightly quoted the “white heat of progress”, but I feel that AI is putting even that white heat into the shade. Whatever we are going to do, be it as organisations, as parliamentarians or as government, we are going to have to do it considerably faster than we are doing now. That raises important questions about how we can accelerate our pace and agility for coping with fast-moving new technologies. Needless to say, I agree with my noble friend Lady Stowell that the UK has the potential to be the powerhouse for growth for AI and tech companies. That is why it is essential for the Government to consider the recommendations made by this report.

There is no doubt that the UK has a deservedly strong reputation for start-ups. I am proud that the UK continues to lead in Europe on having the greatest number of unicorns. I share other noble Lords’ concerns about our competitors, particularly France, catching up with us, and we must be on our mettle. We must be acutely aware of the well-argued, well-founded concerns expressed by the committee that the UK is at risk of becoming an incubator economy. UK fintech unicorn Monzo is a prime example of this. Monzo was born and raised in London, but recent announcements indicate that it may choose to list in the US rather than on the UK stock market. It is a sad reflection that it does not feel confident that our markets are fit to support these scale-ups, and we must recognise that the UK is at grave risk of losing out to other nations.

Across the sector, we continue to see this issue highlighted. Oxford Science Enterprises—I echo the points raised by the noble Lord, Lord Tarassenko—has argued that without urgent action the US will benefit from the unicorns that we are building in the UK. The CEO of the video games industry body Ukie, Nick Poole, describes the UK as

“one of the worst places in the G7 to scale a games business”.

The CEO of Cleo AI, Barney Hussey-Yeo, has reported that the UK is

“a terrible place to scale and list a business”.

It is vital that we restore the appeal of London’s capital markets and remove the unnecessary barriers to growth. The recommendations put forward by the committee address some of the key challenges raised by industry. First, streamline innovation funds to provide a more clear, more comprehensive pathway of support for companies along their growth journey and remove some of the complexity that was referred to earlier. Secondly, accelerate financial reforms to ensure that they keep up with the whiter-than-white-heat rate of technological development. Thirdly, champion entrepreneurial success to celebrate and recognise the national contribution and achievement of successful British entrepreneurs; the wise words of the noble Baroness, Lady Lane-Fox, really resonated in that respect. Fourthly, the industrial strategy itself must provide a coherent, cross-sector vision for how tech scale-ups will be supported to drive economic growth. Fifthly, the Government must commit to AI delivery by removing obstacles to growth and supporting AI’s potential in government strategies. The AI Opportunities Action Plan is clearly a very important step—but a first step—on that journey. Finally, the Government should review their R&D tax credit schemes to include more support for the creative industries, which receive limited investment compared with other key growth sectors.

As noble Lords across the House are aware, when my party was in government we took steps to examine and try to grapple with the problem of addressing barriers to scaling up, through the 2014 Coutu report, the 2017 patient capital review and the 2021 Kalifa review of the UK’s fintech sector. Scaling up start-ups and creating an environment in which enterprises can flourish was a priority for the previous Government, as no doubt it is for this one. That was demonstrated through a range of business support programmes and government-backed financial support to encourage and boost start-ups through Help to Grow. I list these things not because I am claiming they were successful—obviously, if they had been as successful as we wanted, we would not need to be having this debate today—but there is an important step here: we must constantly learn from these programmes what went well, what we need to build on and how we can adapt as we go forward in future.

In government we took the view that AI regulation should be principles and outcome based due to the fast-moving nature of technology, and I was pleased to hear my noble friend Lord Holmes echo that point. I am also pleased that the Government have retained this view, and I am supportive of the approach that they have taken and adopted in this respect towards AI. I welcome the fact that the Government are keen to continue fostering innovation, scaling businesses and supporting emerging technologies. I welcome the Government’s expressed view, building on the foundation of the previous Government, that pensions reforms can channel investment into innovation-driven industries. The Government have committed to ensuring that the British Business Bank will effectively support companies to scale up in the industrial strategy, and I thank my noble friend Lord Willetts for his helpful account of how the various elements of that ending up in the British Business Bank might fit together.

We have heard a great deal recently in this Chamber about AI and copyright, but I will make one point here: we need to move faster towards a trusted marketplace for copyright licensing by AI. The perception—whatever one’s views of it—that AI labs can steal private property with impunity poisons people’s willingness to trust our tech sector and therefore limits growth. The Government’s planned timeline to address that, as I have said many times in these debates, is far too slow and needs to become more agile; it needs to move more quickly.

I close with a few questions for the Minister. As has been pointed out, there have been plenty of different points raised, so if the Minister prefers to respond to some of these in writing, she is very welcome to do so. First, the Government have rightly recognised the pivotal role of the creative technology sector and the challenges it faces. However, there has been no commitment thus far to reform the current definition of R&D tax reliefs to include more of the creative sector. What plans do the Government have to change that?

Secondly, before the election the Labour Party manifesto pledged to create an AI regulation Bill, a commitment that was repeated in the King’s Speech. However, I read in the Guardian that this Bill will not be introduced until the next Session of Parliament. Can the Minister confirm that the Bill has indeed been delayed and, if so, what were the factors behind that decision? Has the Bill’s scope broadened or otherwise changed? Does she share my concerns about the continued uncertainty that this creates, not just for the tech sector but for everyone who is a stakeholder of this tech sector—which, in practice, means everyone?

Thirdly and finally, does the Minister, agree that crypto—or, as I feel they should be called, digital—assets and tokenisation have very serious potential to remove market frictions and cut transaction costs? If so, how can we encourage their use, particularly to help scale-ups? In recent days we have seen the United States make very significant moves in this area. What do the Government make of those moves, and how do we plan to respond?

12:56

[The Parliamentary Under-Secretary of State, Department for Business and Trade and Department for Science, Information and Technology (Baroness Jones of Whitchurch) (Lab)]

My Lords, I thank the Communications and Digital Committee for its very thoughtful and timely report. I pay particular thanks to the noble Baroness, Lady Stowell, for her long and very effective contribution as chair of the committee, as well as for being instrumental in delivering this valuable inquiry. I also thank all noble Lords who have contributed to this discussion with such insight and urgency. As noble Lords’ interventions have shown, we are grappling with some very complex issues.

Before I begin, I take a moment to thank the noble Lords, Lord Evans of Guisborough and Lord Massey of Hampstead, for their engaging maiden speeches. It is a pleasure to welcome them both to the House. The noble Lord, Lord Evans, brings with him a wealth of insight from his time as a barrister and deputy mayor of London and his many years in public service. The noble Lord, Lord Massey, with his experience in political leadership and financial services, adds a valuable voice to our discussions. We are fortunate to have them both contributing to our work.

The title of this report, “less talk, more action”, is a challenge that we take seriously. The Government share the committee’s ambition to unlock the full potential of the UK’s AI and creative technology scale-ups. We understand that there are challenges in scaling these businesses and we are determined to ensure that they scale and stay in the UK. Before I respond to the many questions and interventions, I want to recognise the strength and importance of the UK technology and creative sectors at the current time.

The UK tech sector is an incredible UK success story, and I agree with the noble Baroness, Lady Stowell, that we do not do enough to celebrate the innovators and the risk-takers in the tech sector. Despite her quote, the UK continues to boast the largest tech ecosystem in Europe and ranks among the top five globally, driven by world-class talent, strong R&D and innovative, friendly regulation. It remains Europe’s top destination for tech investment, with a tech sector valued at £1.2 trillion in 2024. As the noble Baroness, Lady Fall, and the noble Lord, Lord Holmes, rightly point out, we have a wonderful university research sector, with four of the top 10 universities in the global index. This is a fantastic basis on which we can grow.

But we know that starting strong is not good enough. Too many of our promising companies struggle to scale. Too often, as we have heard, they grow elsewhere. I agree with the noble Baroness, Lady Wheatcroft, and others that urgent action is needed to avoid the “valley of death”. I also agree with the noble Lord, Lord Willetts, that we need ways to make the scale-ups’ route in the UK so compelling that it makes no sense for them to leave. We want them to stay, and we have to find ways to do that. I agree with the noble Baroness, Lady Lane-Fox, that we need to address the cultural issues that are holding back some of that ambition and expansion. I agree as well with the noble Viscount, Lord Camrose, that we need to find better ways of championing the entrepreneurs and holding them up as role models. We are indeed focused on building an environment where high-growth firms can start, scale and stay in the UK.

Like the noble Lord, Lord Willetts, I pay tribute to my noble friend Lord Vallance, who has a huge project ongoing to streamline funding throughout the start-up and scale-up funding stream in order to tackle, as we have heard, the plethora of government grants, many of which are not long term. We absolutely understand the need for long-term certainty for British businesses.

This work is already beginning to pay off. As of January 2025, 185 companies across the tech sector have reached unicorn status that were either founded or headquartered in the UK. That is more than France, Germany and Sweden put together. We want to see more tech businesses join UK success stories like Wave and Quantexa and scale in this manner.

As both the Prime Minister and the DSIT Secretary of State have made clear, the Government are going to have to keep this momentum going. We are already taking steps. This week we have announced a new £86 billion R&D settlement to fund everything from new drug treatments and longer lasting batteries to new AI breakthroughs to generate billions for the UK economy and drive our plan for change.

We have also announced TechFirst, a comprehensive talent initiative which will give young people across the UK unprecedented access to tech skills and careers, boosting our domestic supply of top tech talent. Our local innovation partnership fund will be investing up to £500 million to help our economic growth spread throughout every region and nation of the country. Yesterday I chaired a round table of regional cluster representatives who are driving forward that local enterprise. They very much welcomed our new funding announcements.

I thank the noble Baroness, Lady Kidron, for her contribution on the value of data. I can assure her that the points she made throughout the Data (Use and Access) Bill about data being a sovereign asset have been taken on board, and they were very well made. I assure her and the noble Lord, Lord Tarassenko, that the principle of it being sovereign data will underpin the national data library. I can also assure noble Lords that the NHS allows access to health data only when it benefits health and care, and we never sell data.

Our creative industries are a national treasure, contributing £124 billion in GVA and supporting 2.4 million jobs. More than that, they are the windows through which the UK presents itself and our values to the world. I can assure the noble Baroness, Lady Stowell, and other noble Lords that the Prime Minister and the Chancellor have hosted a number of events for the creative sector at No. 10 and No. 11 Downing Street to celebrate their success.

In 2025, DCMS-funded research found that 13,800 creative businesses are using emerging technologies, supporting 350,000 jobs. They are also a source of innovation, and where these sectors come together, they produce great things. Createch—the fusion of creativity and technology—is a major growth opportunity. With the right support, createch scale-ups could generate £18 billion in additional GVA and 160,000 jobs over the next decade. We are committed to removing the barriers these businesses face, from access to finance to regulatory complexity. Our upcoming creative industry sector plan, which is indeed due shortly, will set out how we will do just that.

At this week’s spending review, the creative industries received a transformational boost. The settlement announced for DCMS included increased funding, demonstrating the Government’s commitment to fuelling the creative industries. It will help drive regional growth and innovation and develop creative places, ensuring that the UK’s creative industries remain renowned throughout the world.

The opportunity was particularly clear to me this week as I attended London Tech Week. I saw the University of the Arts London bring Future Play from its Creative Computing Institute to the heart of London Tech Week, demonstrating just how engaging creative technology can be for users, as well as many fantastic speakers representing createch companies appearing on panels throughout the week, such as Anna Burke of Animated Technologies and Daniel Verten of Synthesia. We want to ensure that the creative and technology sectors continue to thrive. We want to leverage the strength of the UK in both sectors to ensure that, as both grow, they continue to strengthen one another.

I also want to recognise the strength of our AI sector. It generated £14.2 billion in revenue last year, employs over 64,000 people and is home to more than 3,700 companies, up 17% on the year before. The Prime Minister launched the AI Opportunities Action Plan in January, setting out 50 far-reaching actions needed to drive the development and deployment of AI. The Government will take all these recommendations forward.

In response to the noble Baroness, Lady Stowell, and the noble Lord, Lord Tarassenko, I am pleased to say that just this week we announced an extra £1 billion of funding to scale up our computer power by a factor of 20. This will include making Scotland home to the UK’s most powerful supercomputer, with up to £750 million for that project. We will also train 7.5 million workers in AI by 2030 through partnering with 11 major companies.

The Government are not unaware of the complexities that arise out of AI. I agree with the noble Lord, Lord Holmes, that the challenge is to ensure that our AI deployment is human-led and human-focused. In particular, we recognise the importance of getting the regulatory framework right, especially around copyright and intellectual property. As noble Lords know, we held a detailed consultation on future copyright reform, receiving over 11,000 responses, and no decision has yet been taken on the final policy. We recognise that this is a complex and rapidly developing area and will continue to welcome all views and evidence to help shape our thinking. We will act in the round and on the basis of a careful analysis.

Transparency and other issues raised during debates are of course crucial, but they must be developed as part of a balanced package, to avoid making the UK uncompetitive in AI development. I agree with the noble Baroness, Lady Stowell, that it is unfortunate that the arguments have become a divisive thing between the creative and tech sectors, when in fact they should go hand in hand. We want to ensure that these exciting createch companies are able to continue to innovate and scale, while also supporting our world-leading creative industries—a sector the Government have committed to support as one of the eight priority strands of our industrial strategy.

To show the Government’s ambition for balance in this space, we are convening working groups which will include representatives of all relevant sectors, including the creative and AI sectors. I can assure the noble Lord, Lord McNally, that we will of course also be working with parliamentary colleagues to help shape that report. I hope that that reiterates our commitment to developing policy that is effective, meaningful, proportional and practical in all sectors. Our commitment to supporting our tech sectors is evident in our industrial strategy. Invest 2035, a 10-year plan to support high-growth sectors and create a pro-business environment, will be published this month. The industrial strategy will deliver the certainty and stability that businesses need to invest, create a pro-business environment and support high-potential clusters across the country.

The industrial strategy will channel support to the eight growth-driving sectors, those in which the UK excels today and that will propel us forward tomorrow. Two of these sectors, the digital and technology and the life sciences sectors, are led by DSIT, and another, the creative industries, is led by DCMS. The digital and technology sector plan will build on the UK’s strengths in the six technologies with the greatest potential for growth, including AI, as well as advanced connectivity, cybersecurity, engineering biology, semiconductors and quantum. The plan will give every part of the country a stake in the technologies that are fundamentally reshaping our world, and which are critical to our national security and to growing our economy and improving the lives of citizens across the UK. We will also consider overlap and interdependencies across the growth-driving sectors.

Similarly for the creative industries, our sector plan will set out policies and interventions that will boost creative industries’ growth throughout the country, recognising that they are an economic and cultural success story. The sector plan will set out how the Government will work in partnership with industry to support access to finance, skills and education, innovation and exports. The Government have engaged with various stakeholders throughout the production of the industrial strategy—including through industrial strategy mission groups—to develop those solutions.

As we have heard, ensuring access to finance is absolutely central to our ambitions. The UK had the world’s third-largest venture capital market between 2021 and 2023, raising £72 billion, but we know there is more to do—particularly in unlocking domestic institutional capital. That is why we launched the Mansion House reforms, with the potential to unlock £50 billion for high-growth businesses. The Mansion House compact and the investment compact, now with more than 100 signatories and £100 billion in assets under management, are already shifting the dial.

We have also launched a landmark pension investment review and introduced the Pension Schemes Bill, aiming to increase investment in productive assets. This confirms our intention to change the pensions landscape, with a government-reserved power to ensure that providers sufficiently diversify investments. Today, just 0.5% of UK defined contribution pensions are invested in unlisted UK equities. In Australia that figure is closer to 5% or 6%. We must close that gap, and we have plans to do so.

We are reforming the British Business Bank, marking a major step change in financing companies to start and scale in the UK, and increasing its total financial capacity to £25.6 billion. This expansion will take British Business Bank investments to around £2.5 billion each year. We are also launching the British growth fund and the British growth partnership and remodelled the UK Infrastructure Bank into the National Wealth Fund, with £7.3 billion in new funding to crowd in private investment.

For the creative industries, to date the Government have offered substantial support, with the DCMS Secretary of State announcing £40 million of funding for the creative industries in January, supporting British start-up video game studios, music and film exports and creative businesses outside London. We also announced that the British Business Bank would increase its support for the creative industries to help creative businesses realise their full potential growth. Our soon-to-be-published creative industries sector plan will set out our approach to improving access to finance for creative businesses, developing business investment readiness and crowding in private finance.

We are proud of the work of Innovate UK, which now supports more than 450,000 innovators. Every £1 invested in business innovation returns over £3.60 in direct benefit and over £6 in total economic return. Through programmes such as Innovate UK Business Growth, we supported more than 10,000 innovation-focused SMEs last year, helping them raise £483 million in investment and create more than 2,600 jobs. Under the new executive chair of Innovate UK and the new UKRI CEO, we will refocus Innovate UK’s objectives to maximise its impact to the UK economy.

In addition, our investor partnerships programme has supported 360 SMEs with £144 million in grants and £393 million in aligned investment, unlocking over £1.2 billion in total. More than 3,000 creative businesses have applied for Innovate UK’s Creative Catalyst programme since 2021. We are also supporting late-stage R&D through innovation loans, with £229 million committed to 251 companies.

I agree with the noble Lords, Lord Ranger and Lord Clement-Jones, that skills pose a particular challenge. We currently have around 100,000 vacancies that cannot be filled in the digital sector in the UK. We are acutely aware of this, and we will address it through a reformed programme from Skills England.

To support innovation, we must also modernise regulation. That is why we established the Regulatory Innovation Office in October 2024. I am very grateful for all the work that the noble Lord, Lord Willetts, is doing in chairing the committee and tackling barriers to growth. RIO is already delivering results, from enabling beyond visual line of sight drone operations to launching the second year of the AI Airlock for healthcare and accelerating regulatory sandboxes for engineering, biology and space. RIO will help position Britain as the best place to innovate by ensuring safety, speeding up regulatory decisions and providing clear direction.

We have also commenced the digital markets regime, giving new powers to the Competition and Markets Authority to tackle the dominance of a few large firms. As the noble Lord, Lord Clement-Jones, pointed out, the CMA is investigating Google and Apple’s positions in search and mobile ecosystems. These steps are vital to ensure fair competition and open markets.

The noble Baroness, Lady Lane-Fox, rightly mentioned the challenge and opportunities of procurement. As she says, we are taking action on this. She asked for a progress report and I will write to her, giving an update on that information.

This Government are not just talking; we are acting. We are unlocking capital, reforming regulation, supporting innovation and backing our creative and digital industries. But as we close another fantastic London Tech Week, we recognise that there is more to do. We welcome the committee’s scrutiny and share its sense of urgency.

If I have not answered all the points that have been raised, I will of course write to noble Lords. We are committed to working with Parliament, industry and academia to ensure that the UK is not just a great place to start a business but the best place in the world to scale one. That is our ambition and we look forward to working with noble Lords to deliver it.

13:16

[Baroness Stowell of Beeston (Con)]

My Lords, this has been an excellent debate. I thank the Minister for her comprehensive response. I know this debate comes at the end of yet another busy week for her—handling the data Bill and the Employment Rights Bill, and she has just referred to being at London Tech Week too. She talked about a lot of activity coming from the Government, and I hope she can carve out enough time in her schedule over the next few months to make sure the activity leads to the outcomes and results that are much needed in this area. Speaking as a former Minister, I know what it is like to think that it is all happening because we have said it is happening, but it needs a lot of concentrated supervision.

I thank all noble Lords who have contributed. It has been fascinating and heartening to hear noble Lords cover topics that I did not and that are so important to this debate. My noble friend Lord Hamilton raised energy right at the start, but we have also heard about skills, the importance of data and government procurement. Government procurement is particularly important to emphasise, because not only does procurement—rather than grants—more often help the success of these companies but it is an important aspect to the deployment and adoption of the new technology. It is an area where even more focus is needed from the Government, to make sure that companies can get the access to contracts that they deserve.

I congratulate my noble friends Lord Massey and Lord Evans on their maiden speeches. Both have played significant roles in the Conservative Party and have demonstrated today their strong credentials as contributors to this House. My noble friend Lord Evans was modest in his mention of the work he does to support Women2Win. He plays a big part in helping women who are novice politicians in their preparation for the daunting task of facing selection meetings.

My noble friend Lord Massey gave an impressive set of recommendations to unlock more investment capital, and his analysis of the barriers that deter risk-taking was very powerful. He referenced the FCA and financial regulation as problems in this area. Although he is not in his place, it is worth me giving a plug to the report published today by the Financial Services Regulation Committee, which my noble friend Lord Forsyth chairs; it is very much about regulation in the financial sector and what it needs to do.

My noble friend Lord Willetts, the noble Viscount, Lord Stansgate, and the noble Lord, Lord Clement-Jones, referred to the trio of Select Committee reports on the challenge of scale-ups. My noble friend Lady Fall referred to a report this week from the Tony Blair Institute on the topic of scale-ups. All of this shows that the challenge of scaling up in AI and creative tech—and, indeed, the tech sector more broadly—is not going away. We have enough understanding now of the obstacles and how to deal with them. As my noble friend Lord Willetts said, if we focus on the companies that have the potential to scale rapidly, the challenge should be manageable. Even if we have grappled with it now for more than 10 years, there is just too much at stake for us not to succeed.

To finish, I know it is a bit of a cliché but it is true that it has been a privilege to chair the Communications and Digital Select Committee. I thank noble Lords for their very kind words about me today. I also thank again the colleagues I have worked with, and particularly the committee staff, both the current team and their predecessors—they really are superb. I wish my esteemed successor, the noble Baroness, Lady Keeley, great success; I am sure that the committee will thrive under her chairmanship.

Finally, I thank all the people I have met from the tech, media, creative and telecom sectors over the last three years. I am full of admiration for them and all they do to advance their businesses and contribute to the economy and our society, and I wish them continued success.

Motion agreed.