The UK government’s plans to axe £1.3bn of funding for tech and AI could damage the country’s standing as a tech power, says startups and VCs.
Earlier today, the BBC reported that £500m funding for the AI Research Resource, which funds computing power for AI, and £800m for a supercomputer at Edinburgh University had been cut.
The move has drawn criticism from the UK startup community, with some concerned that it could stop the country’s tech sector competing on a global scale, as well as potentially pushing startups to relocate to more favourable locations, like the US.
“Cutting back on compute in 2024 is the equivalent of cutting back on railroads in the nineteenth century,” says Nathan Benaich, partner at AI-focused VC Air Street Capital.
“While the new government has often signalled its enthusiasm about the potential of technology, it has to decide if it’s prepared to accompany these warm sentiments with serious focus and investment.”
The cuts come as the UK government grapples with what it says is a £22bn black hole in its finances.
“The Government is taking difficult and necessary spending decisions across all departments in the face of billions of pounds of unfunded commitments,” a Department for Science Innovation and Technology (DSIT) spokesperson told Sifted, adding that this was “essential to restore economic stability and deliver our national mission for growth”.
“We are absolutely committed to building technology infrastructure that delivers growth and opportunity for people across the UK,” they said.
‘Holding back’ UK tech
But a number of founders and investors told Sifted that cutting back on funding AI could push UK startups to set up shop further afield.
The “biggest effect” that these cuts could have on startups is encouraging them to look to shift their operations to the US, according to Joshua Wöhle, founder of AI edtech Mindstone.
While £1.3bn is “nothing” in the AI race, he says, the move tells people the UK government is “not serious” about the technology.
“It puts into question the government’s ability to think about the future — innovation like this always being a cost today for impact later,” Wöhle adds.
“If we don’t have public/academic access to these big computing infrastructures, the research quickly shifts to private companies and we will be dependent on them — many of which are US.”
AI cuts could also see the UK fall behind its European counterparts, say some investors.
“Other European countries like France are pouring money into AI to ensure startups have the resources they need,” says Robert Lacher, Founding Partner at Visionaries Club, pointing to a €2.5bn commitment from the French government to develop the technology.
“We’re starting to see more and more global category winners being built on European soil, so investing in technology infrastructure is more important than ever to fuel innovation and growth,” he tells Sifted.
In France, AI startup Mistral raised €600m at a €5.8bn valuation in June and Germany’s Aleph Alpha raised $500m in November 2023. There have been recent UK AI success stories too: in May, autonomous vehicles startup Wayve raised $1bn from NVIDIA and Microsoft in Europe’s largest AI round.
“With the appropriate government funding, we could become truly competitive globally, but it’s cuts such as these that will hold the UK back,” says Dominic Vergine, founder and CEO at Monumo.
Lacher tells Sifted that “many” founders of his UK-HQ’d portfolio companies are “concerned” about government AI cuts: “I hope Starmer’s government reconsiders this decision and the UK’s tech ecosystem remains a priority.”
There are also concerns that signalling that the UK is reducing funding from key tech sectors like AI could have a tangible impact of VC dollars being pumped into the country’s startups.
“It’s important to consider how this apparent shift in priorities might affect investor confidence and the UK’s global competitiveness in tech and AI,” says Cien Solon, founder of LaunchLemonade, a UK startup which looks to help other startups use AI tools.
Not that bad?
But others were less negative.
“I don’t think those projects would affect the startup scene much in the short term,” said Simon Murdoch, managing partner at Episode 1. “We hope that this is only a short pause to review what the government should invest in to keep the UK highly competitive in the AI sector worldwide.”
“Large scale infrastructure is expensive and can become obsolete quickly, so investment in software infrastructure, and in multiple early stage and growth companies may be a better use of taxpayers money,” he adds.
UK government’s recent tech moves
Last week, the tech community hailed government plans to invest £8.3bn into GB energy — a state-owned company to increase renewable energy generation — in the hopes that it would mobilise £60bn in private capital into the sector.
While that capital will likely go to later-stage businesses, it could have a positive knock-on impact for smaller startups, too, said Hope Johnson, investor at Octopus Ventures.
There’s lots more work to be done though.
Semiconductor startups are being held back by a “really big block” at the scaleup phase, the UK’s new minister of state for science, research and innovation, Patrick Vallance, told Sifted in an interview earlier this week.
“This comes back to the point about the need for real scaleup focus in everything we do in terms of industrial strategy relating to semiconductors,” he said. “We haven’t yet got that funding at a larger scale.”
Mansion House reforms — which were announced last year and are aimed at unlocking tens of billions of pension fund capital for startups — will be a “really important part of [accessing] that”, he added.
The government is also planning a major AI bill that focuses on ChatGPT-style models, which officials hope will be ready for its first reading in parliament by the end of the year.
A DSIT spokesperson said that the government would consider future investment in compute infrastructure following the development of the AI Opportunities Action Plan — a task force led by Entrepreneur First’s Matt Clifford.
“We have launched the AI Opportunities Action Plan which will identify how we can bolster our compute infrastructure to better suit our needs and consider how AI and other emerging technologies can best support our new industrial strategy,” they told Sifted. DSIT did not comment on when this would be published.
Read the orginal article: https://sifted.eu/articles/uk-government-ai-funding-cuts/
