Conditions need to be right for the UK’s AI ecosystem to thrive – that includes regulation

Imagine the scene. It’s November 2023 and the UK government is hosting the inaugural AI Safety Summit at Bletchley Park. The broad consensus is that the UK is strongly positioned to stake a claim for global AI leadership. As recently as February, things seemed to be on the same trajectory with the government proclaiming a “pro-innovation” approach to regulating AI.

In recent months, there’s been somewhat of a shift. The reasons are debatable but the strategy to encourage a flourishing AI ecosystem has been diverted by suspicion, with the Competition and Markets Authority (CMA) playing a bigger role in the UK state’s narrative around AI – with head-turning warnings that an “interconnected web” of big tech giants risks monopolising the nascent AI industry.

It would be remiss not to acknowledge the nuance of the CMA’s stance, indicated by their recent decision to drop an investigation into a tie-up between French AI startup Mistral and Microsoft. But the reality is that there are far larger partnerships under scrutiny at the time of writing, including between Anthropic and Amazon, and Microsoft and Open AI. Billions of dollars are at stake and extensive scrutiny could have major knock-on effects that regulators should be wary of.

Big tech companies are essential players in the scaling of companies at the forefront of AI innovation. The government must do all it can to support and shepherd this investment – especially given that the UK boasts attractive characteristics for AI startups including an exceptionally strong tech talent ecosystem. Sticking our head above the parapet to regulate AI as a first mover is high risk and the value of doing so isn’t clear. The UK must proceed with caution.

Strong foundations give room for AI hope

The UK’s startup ecosystem unquestionably punches above its weight. Our world-class technical universities are a big part of that. Cambridge and Imperial alumni are behind the likes of self-driving AI technology startup Wayve, which recently raised $1 billion, and DeepMind, which remains based in London despite being acquired by Google and continues to be a key player at the cutting edge of AI development. London also benefits from having a rich base of AI talent and historic industries – music and legal are good examples – which disruptive AI upstarts can emerge from.

So, the conditions for future UK AI success stories are good – but it’s dependent on capital availability. Big Tech is the largest investor in AI startups at the growth stage today. Unlike VC funds, the big tech players aren’t as sensitive to valuations and future business prospects. They’re focused on the underlying AI technology and, therefore, using deep pockets to invest hundreds of millions of dollars in AI upstarts with valuations over a billion dollars despite little to no revenue on the books. For VC funds to invest in a start-up, they do so with the expectation that their stake will be multiplied. That isn’t possible at the later stage of current AI funding raises. Without the participation of big tech, there’s a risk of a capital vacuum at the later stages of AI funding. Faced with this, investors and founders could lose confidence in the viability of the UK as a market to tap into capital to train the latest and greatest AI models.

Careful market signals are critical for fending off this scenario and the CMA’s scrutiny of big tech’s involvement in the young AI ecosystem could be just the signal that hits the wrong note for the UK.

Flawed logic and approach

There is, of course, space for regulatory oversight of AI in the UK. Ensuring our cultural norms of high data protection standards are upheld as new AI applications emerge is essential.

But the CMA’s current angle is rooted in anti-competition concerns and that’s fundamentally incorrect. Anti-competitive behaviour is hard to prove, and the negative consumer impact of AI market movements isn’t clear – AI is getting better, not worse, and there’s no sign of a market monopoly. Put it this way, it’s not against the interest of consumers for big tech companies to plough billions into improving AI models that have a clear case for being good for society.

The UK government must also consider strategy here. It must be prepared to fill the gap if it cuts off funding for fledgling AI companies from big tech. Other governments are successfully playing a pronounced in their national AI ecosystem. The French public sector, for example, has invested considerably in its tech ecosystem and the Saudi government is developing its own Arabic Large Language Model. The UK state isn’t making any similar kind of splash.

Pivotal coming months

The CMA should be commended for its cool-headed decision to close its investigation into Microsoft’s Mistral partnership. It sends a clear signal that the competition regulator isn’t biased and consistently ‘anti-big tech’.

Probes remain live, however, and the significance of mood music coming from the CMA has been elevated to even greater heights following the Digital Markets, Competition and Consumers Bill coming into law in the dying moments of the last parliament. Investors will note the expanded power of the CMA under the bill and consider what it means for AI start-ups and their backers.

The next UK government will undoubtedly want to make the nation an attractive market to launch and HQ an AI company. But that’s going to require a welcoming space for big tech. An unnecessarily zealous regulatory environment will alienate talent and investors, pushing the UK to the sidelines of AI development.