AI and Creative Technologies (Communications and Digital Committee Report)
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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.
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.