Artificial Intelligence (Select Committee Report)

Lord Hollick Excerpts

Monday 19th November 2018 Lords Chamber

[Lord Hollick (Lab)]

My Lords, I thank the chairman, the clerk, his team and our specialist adviser for helping the committee to navigate the vast landscape of AI. I will focus on three connected parts of that landscape: AI’s possible impact on industrial performance and productivity; its impact on the world of work; and its possible impact on the distribution of income. I emphasise “possible impact” because the widespread adoption of AI is at an early stage and, while there is no shortage of analysis and prediction, there is as yet no substantive body of evidence to guide us.

Over the past 30 years, the rapid deployment of computing and automation has revolutionised the way we live, learn and work. AI takes this a lot further. It can remember more, think faster and perform complex tasks which we took for granted to be the preserve of humans. AI, with these abilities, will bring about far-reaching changes right across the board.

The Government recognised AI’s revolutionary potential when they placed AI at the heart of their Industrial Strategy last December. That strategy and the subsequent publication of the sector deal in April made the bold claim that AI would potentially add 10% to our GDP by 2030, if adoption is widespread, and boost productivity by up to 30%. The development and deployment of AI are seen as a building-block in the creation of a significant new business sector with good export potential.

The UK’s investment in AI is a fraction of the amount invested by the US and China, both of which are planning significant increases in their investment over the next decade. But thanks to our strong research base and access to the best and brightest academics and entrepreneurs in the EU and globally, our AI sector ranks among the finest in the world. To maintain this position, the Government must commit to replace EU funding for research and development, where the UK currently receives a disproportionately high level of subsidy thanks to the strength of our AI sector.

Investment to provide fibre to all premises nationwide is critical. In February, only 3% of premises were connected by fibre compared with more than 50% in most of our competitor countries. When he was Secretary of State at DCMS, the much-travelled Matt Hancock waved away our concerns and told us that the market would take care of it. We found his assurances unconvincing. What are the Government doing to prioritise funding for this essential infrastructure?

The ability to continue to attract the best and brightest and budding entrepreneurs is essential. The Government have made a good start by increasing the number of PhD places in, and doubling the cap on, tier 1 exceptional talent visas but, as they acknowledge, there is much more to do. The challenge of attracting and retaining talent after Brexit is highlighted in a recent survey of scientists by the Francis Crick Institute: 78% from the EU said they were now less likely to stay in the UK and a surprising 31% of the UK-born scientists said they were now more likely to move overseas. What further measures are the Government contemplating to improve access for overseas talent?

Maintaining and increasing the investment flowing into the development of AI could be boosted if the Government chose to use a fraction of the £45 billion annual procurement funding to partner with the AI sector to develop AI solutions for the public and private sectors alike. This approach would help to address the long-standing British problem of excelling at research but leaving the development of that research for others to exploit.

The UK’s thriving AI sector has proved a magnet for international investors. This is to be encouraged, but must be matched by a determination to ensure that inward investors do not game the tax system and that they abide by the developing rules on privacy and content, particularly the recognition that the protection of the integrity and ownership of data is paramount.

As the noble Lord, Lord Clement-Jones, mentioned, the acquisition by Google of DeepMind, one of the jewels in the crown of AI in the UK, brought welcome funding to develop DeepMind’s leadership position, but it meant that ultimate control now resides in the US. The reality of that control became clear last week, when Google absorbed DeepMind’s healthcare business, which has benefited from a controversial deal with the Royal Free Hospital to access 1.6 million patient records—a deal that the Information Commissioner ruled failed to comply with the Data Protection Act. When we visited DeepMind, we were told that an undertaking had been given by Google that the healthcare business would remain part of DeepMind and based in London. What are the Government’s concerns about the transfer of DeepMind’s healthcare business to Google in apparent contradiction to these undertakings?

Public administrative data, particularly healthcare data, is a valuable public resource and should be made available to commercial partners under strict conditions and on arm’s-length, market terms. Public bodies lack the skills to negotiate such arrangements, so the Information Commissioner’s Office should be resourced to oversee the terms and conditions of agreements to make sure that public information is made available to commercial partners on market terms. What are the Government’s plans to support public institutions to make sure that they secure the right terms and conditions?

In a similar vein, the Competition and Markets Authority should take a close interest in the sale of AI enterprises to foreign buyers. Their sale can undermine the Government’s strategy to foster a UK-based and controlled AI sector of scale and further deepen the unprecedented concentration of wealth and power in a small number of US-based digital oligopolists.

UK consumers are among the most enthusiastic adopters of new technology, but not so UK business. The low level of tech adoption by UK companies, large and small, is part of the story of our productivity gap. The Government, with the help of industry bodies and the AI council, should devise a series of measures, including fiscal incentives, to accelerate the take-up of technology across the board.

Productivity improvements usually spell job losses. The deployment of AI will lead to job losses, and the public are rightly anxious about their jobs, wages, security and prospects. Predictions of job losses range from 10% to nearly 40% of the current workforce. Many will be in the service sector. Predictions of off-setting new jobs to be created range from a net loss of nil to 30%. It is generally agreed that job losses will precede the arrival of new jobs, but it is not just the availability of a new job that concerns the public but the type of job and the pay and conditions that go with it. The experience of the impact of automation on the job market so far is that replacement jobs for unskilled or semi-skilled workers are less well paid, less secure and lack the benefits enjoyed in their previous employment. AI now places at risk many of the jobs which replaced those lost in manufacturing.

Take call centres and large distribution centres, which are often sited in former manufacturing areas. Call centres employ a little under 1 million people. An industry expert told us that by 2020, 40% of those jobs, and by 2025, 70%, would be replaced by AI answering systems. Warehouses are increasingly fully automated and will employ only a few maintenance, caretaking and software people.

In a recent speech at the Royal Society, Professor Stiglitz examined the impact of the adoption of automation on income and wealth distribution and highlighted the increasing polarisation in the workforce between the skilled and the unskilled. Citing US figures, Stiglitz noted that the real wages of the unskilled and semi-skilled worker have declined over the last 35 years, with male workers experiencing a 42-year decline. He warned that, in the absence of a new policy framework, this trend will continue, but across a wider section of the workforce, as AI is deployed to carry out both routine and complex tasks.

The figures in the UK are not as bleak, but many low earners, especially the unskilled, have seen their real income decline or increase only minimally over the past 30 years. There is a widening gap between the high and low earners. Average real wages fell between 2007 and 2015, and have stagnated over the past three years. The same pattern can be seen in many developed countries. There is a correlation between low income and social mobility, which fosters a sense of disconnect, of being left behind—a sentiment that provides fertile ground for populist politicians.

We have heard much in the past week about bringing the country together. Perhaps bringing the Government together might be a good start. With the right policies, AI could usher in a period of prosperity, but without the right policies it could further polarise society and undermine social cohesion. A priority must be for the Government to make a major commitment to invest, as the chairman of our committee said, in lifetime training and skills to equip people to deal with the far-reaching and continuing changes that will flow from the introduction of AI.

The Government should consider the introduction of a lifelong learning account to replace what the Economic Affairs Committee’s recent report on student loans called the current “unfair and inefficient” funding of post-school education where further education, whose funding has been severely reduced, is the,

“poor relation to higher education”.

We need a new deal to help workers to train and retrain throughout their working lives. This will help to narrow the politically toxic gap between those with skills and those without. I look forward to hearing the Minister’s response to these issues; they have been identified in the report, and he has recognised that more needs to be done. It would be good to hear today what that “more” is.

Industrial Strategy

Lord Hollick Excerpts

Monday 8th January 2018 Lords Chamber

[Lord Hollick (Lab)]

My Lords, successive Governments have energetically committed themselves to boost growth by improving industrial performance. After all, growth secures and improves the public finances and promotes a feeling of well-being and confidence—two sentiments which have been notably in short supply since the 2008 financial crisis.

In the 1960s, Harold Macmillan created the National Economic Development Council to inaugurate indicative sectoral planning. Backed by Treasury funds to support a big infrastructure investment programme, the country then set off on a dash for growth to achieve 4% per annum. Harold Wilson went further and published a national plan to capitalise on the white heat of the scientific revolution. The target 4% growth rate was achieved, but not for long as the Government became distracted by the troublesome behaviour of the pound. Edward Heath concluded that the best way to help Britain recover from being the sick man of Europe was to join the European Economic Community, with its large addressable market and bracing competition from other nations with more successful manufacturing sectors.

And so to today, where many of these themes find an echo. The economy is in austerity mode, weighed down by the cost of the financial crisis. We are now on the brink of leaving the EU or contriving to find a semi-detached relationship. Wage levels, unless you are in the FTSE boardroom, are trending flat and confidence, as measured by the depressed state of corporate investment, is at a low ebb. George Osborne decided to double down on austerity and thus failed to take advantage of historic low interest rates to invest in fixed and human capital. He coined some snappy phrases, such as the march of the makers and the northern powerhouse, but failed to take steps to make them take root.

In contrast, Mrs May has brought planning back to centre stage and added industrial strategy to the title of her business department. The detailed industrial strategy that has been published is to be commended, but can it be delivered? The plan’s analysis of the UK’s shortcomings is wearily familiar, but no less important for that. Labour productivity has declined faster in the UK than in any other OECD country; total investment in science and innovation is 1.7% compared with the OECD average of 2.4%; our workforce is inadequately skilled; investment in our infrastructure is far too low; and we have a long tail of low productivity firms. Crucially, we fail to translate our brilliant research into successful businesses and, if we do—we do sometimes—they are often snapped up by overseas investors with funds which will help fill the trade deficit, which continues to deteriorate despite the strong growth in services. The industrial strategy unflinchingly acknowledges these deficiencies and offers a wide range of initiatives backed by a measure of funding too often deferred.

However, against the backdrop of the deteriorating macroeconomic outlook and the complete unknown of life outside the EU, I doubt that these sensible, but modest, initiatives and the level and timing of the funding will suffice. To work, a strategic plan must set clear, prioritised targets and ensure that all are adequately funded and resourced. Above all, the focus must be on outcome not on a long list of activities. This strategic plan has few measurable targets, and the funding is thinly spread across a frankly confusing blizzard of microinterventions. Crucially, there is insufficient thinking and planning to boost the demand side, where the UK’s economy is chronically deficient. Will the proposed governance structure, headed by an independent industrial strategy council comprising business people, investors, academics and economists, have the resources to evaluate the effectiveness of all the initiatives? Will its work be supported by an expanded OBR? I ask this because the Government have poor form on independent accountability. The National Infrastructure Commission was initially to be a statutory body to monitor and make independent reports to Parliament on all major projects, but after pushback from the departments whose projects would be exposed to the cold light of independent scrutiny, the Treasury quietly dropped the potentially inconvenient statutory status.

The commitment to devolve the implementation of the planned initiatives to the regions is welcome, but it must be backed up by hard cash transfers from Whitehall and must allow the regions to work out for themselves and select which of the policy initiatives they wish to implement. This will help to rebalance government funding away from London and the south-east and will introduce a necessary element of competition.

Housebuilding would be a major beneficiary of a move to devolved responsibility, but only if local authorities are allowed to borrow to build and, in particular, to build much-needed social housing. The Economic Affairs Committee of this House, which included two former Chancellors and three Treasury mandarins, last year recommended a target of 300,000 new homes a year. That target is included in the strategy. The committee also crucially called upon the Government to lift the limits on local authority borrowing for housebuilding. The UK should adopt the accounting convention of most OECD countries and exclude public loans to build houses, which are, after all, income generating, from the public sector borrowing calculation. This change would allow local authorities to fund themselves and to partner housing associations and private sector builders to deliver the homes which are so desperately needed.

The Budget promise to increase funding for housebuilding is helpful but is estimated to deliver only an additional 30,000 homes over the next five years. Bolder action is required, but finance is not the only constraint. The housebuilding industry estimates that an additional 500,000 workers are needed to build 300,000 homes each year. Where are they to be found? Surely it is time that the Government came clean and explained how immigration restrictions will be managed to ensure that the workforce will be available to build the homes the country needs and that other sectors of the economy are adequately staffed. A strategic plan without the provision of the skills to implement it is a sham.

The strategy is right to plan to capitalise on the UK’s strong position in artificial intelligence. To do this the tech sector needs to be able to continue to attract the best talent from around the world. The Government should use public sector procurement to boost the development of AI by ensuring that it is deployed throughout the public sector. Government funding for research and development should be provided on a partnership basis with industry so that the risks and rewards are shared proportionately and so that the Government receives a fair share of the profits on successful AI products. A vibrant AI sector can also promote digital adoption by companies large and small to the great benefit of national productivity—but there is a but. Our digital infrastructure is second rate. We rank 54th in the world for fibre connections to premises. The commitment to spend £1 billion to beef up mobile and broadband is wholly inadequate to build a universal fibre and 5G network. The Government’s response that the market will take care of it is dangerously complacent. They must produce a comprehensive and costed plan in partnership with industry to provide this crucial infrastructure if they are to achieve the objective set out in their plans. If they can find £70 billion for HS2 to make 19th century infrastructure go faster, surely they can find a lesser sum to fund the essential digital infrastructure of the 21st century which, unlike HS2, will pay its way.

An AI turbo-charged economy is expected to bring significant disruption to the workplace. Some roles will be enhanced and new roles will be created, but many will disappear. There is likely to be a prolonged period of turbulence and uncertainty which will call for far-reaching changes in education and training and, in particular, in retraining throughout a lifetime. This means an increase in funding and a rebalancing to boost skills and vocational training.

The overall macroeconomic outlook for the UK continues to be very challenging. Leaving the EU brings uncertainty, disruption and confusion, which are all enemies of growth. The industrial strategy sets out clearly the deep-seated and persistent problems the country faces. The combination of these three challenges demands a bold and radical response which can build on many of the proposals included in the strategy. Now is not the time for unfocused half-measures or for funding deferrals. To meet the challenge the strategy should be radically reworked to prioritise key elements, set clear and verifiable targets and ensure that the proper levels of funding are in place. Borrowing to invest in a long-term growth plan is now a national priority.