AI and Creative Technologies (Communications and Digital Committee Report)

Baroness Stowell of Beeston Excerpts

Friday 13th June 2025 Lords Chamber

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[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.

--- Later in debate ---

[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.