UK’s AI plan of action needs to shift into overdrive

Twelve months after Labour’s 50-point plan of action to stimulate the UK’s artificial intelligence (AI)-enabled economy, a new report shows billions of pounds are being invested in UK AI startups.

The AI Index report from the Startup Coalition, sponsored by Coreweave, analysed funding of the UK’s top 1,000 firms according to the amount of private capital they have raised, in collaboration with data provider Beauhurst. The report shows that the top AI firms have raised more than £20bn in private capital and now command a combined valuation exceeding £45bn.

The study, which the Startup Coalition has used to build an AI Index, shows that business services account for 388 startups, which have raised £8.3bn in funding. According to the Startup Coalition, this shows that UK startups are building B2B tools that solve commercial problems.

The study found that startups with AI expertise in financial services (123 firms) and health (129 firms) demonstrate how deep sector expertise is being combined with AI capabilities.

However, compared with the £20.2bn in private financing, the UK government has only provided £456.5m in grants, equivalent to 2.2% of capital. According to the Startup Coalition, while this shows private sector confidence, it also reveals limited public commitment, compared with competitors like France, where the state is actively co-investing at scale.

Another challenge is the relatively high equity stake universities have in UK AI startups that have been spun out of university research. The Startup Coalition reported that in 2024, the average equity stake for startups stood at 16.1%.

While this is lower than the 25% reported a decade ago, the Startup Coalition believes it is still too high, which dilutes incentives for innovators to launch a new company and deters external investment. It urged the government to look at introducing a tiered cap to align the UK with frontrunners. The Startup Coalition said this could stimulate more founders spinning out from institutions up and down the country.

The UK is a global powerhouse for AI innovation with a maturing ecosystem that is spreading right across the economy. But we cannot afford to be complacent

The Startup Coalition also wants to see changes to the tax system through the introduction of a Scaleup Distribution-Based Corporation Tax (DBCT) regime modelled on the system used in Estonia, which it said would provide essential cash flow to firms as they begin to scale.

It noted that the UK’s corporate tax system taxes profits as soon as they are earned, even when they are fully reinvested into growth, which discourages the retention of capital for expansion and penalises companies that have just transitioned to profitability but are not yet at scale.

Through DBCT, it said companies would pay 0% corporation tax on retained and reinvested profits, and would instead pay tax only when profits are distributed, such as through dividends or share buy-backs.

Looking at government policy, the Startup Foundation said founders of AI startups needed access to talent without visa friction, along with quick and easy access to compute resources. 

Vinous Ali, deputy executive director of the Startup Coalition, said: “The UK is a global powerhouse for AI innovation with a maturing ecosystem that is spreading right across the economy. But we cannot afford to be complacent. Our index shows the UK is already a leader in the application layer. With such a clear competitive advantage, the government needs to double down on where we are already winning.”