AI and Creative Technologies (Communications and Digital Committee Report)

Lord Willetts Excerpts

Friday 13th June 2025 Lords Chamber

[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.