The U.K. risks losing its artificial intelligence (AI) startups to other countries like the U.S. due to a lack of capital, complex regulations, and cultural differences. This warning comes from a report released by the U.K.’s House of Lords Communications and Digital Committee. The report cites the example of DeepMind, a British AI company that sold itself to Google in 2014 instead of becoming a major player on its own.
DeepMind went on to develop Google’s primary AI model, Gemini. The most advanced AI models and systems are being created and expanded by U.S. companies such as OpenAI, Google, Meta, Anthropic, Amazon, and Nvidia. China also has AI leaders like Baidu, Tencent, and Alibaba.
The report states that the consequences of the UK’s falling behind in AI could be significant. It may lead to reduced global competitiveness, weaker economic prospects, and a “brain drain” of talented individuals. The report notes that 47% of AI-related revenues in the UK come from businesses owned by the US and other foreign entities.
Nathalie Moreno, a partner specializing in AI at a London law firm, said the report highlights a growing gap between the U.K.’s ambition and execution in AI and tech policy. She pointed to fragmented government support, limited access to capital, risk-averse investors, and regulatory uncertainty driving startups to leave the country. The U.K. government has tried to support AI startups through financial reforms, tax credits, investment incentives, and pro-innovation initiatives.
Lord’s caution on AI exodus
However, the report says these programs have created an “overly complex spaghetti of schemes” that do not provide clear financial support. Moreno also noted that the U.K.’s “sector-specific approach” to regulating AI actually creates uncertainty among startups.
The U.K. has tasked existing regulators in different industries to regulate AI based on a set of values but with discretion on how to apply them. This makes it difficult for startups to plan long-term strategies and navigate complex compliance requirements. Mark Barnes, a professor of practice in entrepreneurship and innovation at Warwick Business School in England and a former venture capitalist, pointed to capital and cultural obstacles.
He said there is a general cultural belief in the U.K. that they are good at inventing things but not commercializing them. The British startup mindset is also risk-averse, which Barnes attributed to having less venture capital than the U.S. In California, for example, a significant amount of the world’s venture capital is raised and invested just in that state, likely exceeding the total for Europe. Paul Firth, a British founder of an AI startup based in New York, said the risk-averse personality broadly characterizes the U.K. population.
He explained that the culture is not optimistic, ambitious, confident, or risk-taking. The U.K. is a small market, so startups with bigger ambitions must go to larger markets to thrive. Moreno said the U.K. would need to create a clear AI and tech investment strategy to unlock domestic growth capital for scale-ups and simplify regulatory frameworks to prevent further brain drain and capital flight.
The government should also deliver on its recently announced AI Opportunities Action Plan, which pledges to increase AI adoption across the U.K. through world-class research, startup support, AI governance leadership, and other actions.