Britain’s artificial intelligence (AI) startups are at risk of leaving the country due to a lack of capital, complex regulations, and cultural differences. A report from the Communications and Digital Committee of the U.K.’s House of Communications says the U.K. could become an “incubator economy” for other nations. The report cites DeepMind as an example.
The company, whose CEO shared a 2024 Nobel Prize for an AI model that solved a biology challenge, sold itself to Google in 2014. Today, the most advanced AI is being developed in the U.S. by companies like OpenAI, Google, Meta, Anthropic, Amazon, and Nvidia. China also has AI leaders in Baidu, Tencent, and Alibaba.
The consequences of the U.K. falling behind in AI are “significant,” according to the report. It could lead to decreased global competitiveness, weaker economic prospects, and a “brain drain” of talented individuals. Nathalie Moreno, a partner specializing in AI at a law firm in London, said the report “underscores a growing gap between the U.K.’s ambition and execution in AI and tech policy.” She added that fragmented government support, limited access to capital, risk-averse investors, and regulatory uncertainty are driving startups abroad.
The U.K. government has tried to nurture AI startups through financial reforms, tax credits, and investment incentives.
UK risks AI brain drain
However, these programs are described as an “overly complex spaghetti of schemes” that fail to offer coherent financial support.
Moreno also pointed out that the U.K.’s “sector-specific approach” to regulating AI creates uncertainty among startups. Navigating complex compliance requirements requires significant resources that startups might prefer to invest in innovation. Matthew Barnes, a professor at Warwick Business School and a former venture capitalist, pointed to capital and cultural obstacles.
“In the U.K., we have a general cultural belief that we are very good at inventing things but not particularly good at commercializing them,” Barnes said. According to the report, early-stage funding in the U.K. is on par with Silicon Valley up to $15 million. However, for rounds of $15 million to $100 million for “breakout” startups and over $100 million for scaling up, the U.K. lags significantly behind.
Tom Firth, a Brit based in New York and founder of a tech company, said the risk-averse personality broadly characterizes the U.K. population. “Britain is a terrible place to start a software company like an AI startup,” he said. To prevent further brain drain and capital flight, Moreno suggested that the U.K. needs to create a clear AI and tech investment strategy, simplify regulatory frameworks, and deliver on its recently announced AI Opportunities Action Plan.
“The U.K. still has all the right ingredients to be a global leader in AI and tech, but without bold reforms, it risks becoming a training ground for companies that scale elsewhere,” she concluded.