UPDATE — SEPTEMBER 2025: In 2025, DSIT shifted into implementation mode with its AI Action Plan, which went through consultations in early 2025 and is expected to be formally published this autumn. Drafts of the plan show targeted interventions: funding regional AI hubs, scaling support for startups, skills development programs, and investment incentives to spread AI growth beyond London. To reinforce regulatory trust, the government also advanced frontier AI legislation, committing to establish a statutory AI Safety Institute with initial funding of £10 million, formalizing safety oversight after the voluntary agreements reached at the 2023 Bletchley Park Summit.
Regional investment has been a clear focus. DSIT and Innovate UK rolled out new programs in 2025 to support AI R&D in cities such as Manchester, Birmingham, Leeds, and Glasgow. These initiatives are designed to reduce London’s 70%-plus dominance of AI companies and investment. At the same time, international cloud and compute providers, including Microsoft and AWS, have expanded UK-based AI infrastructure, easing concerns about dependence on overseas capacity.
Investment volatility, however, continues. Early 2025 data showed deal counts remaining high but with smaller average values, keeping pressure on scale-ups to seek international capital. In response, DSIT doubled funding for AI scholarships and fellowships, with emphasis on regional universities, to address talent bottlenecks.
Finally, the UK has reinforced its global AI role through deepened policy cooperation with the U.S. and EU, particularly around standards for frontier AI safety and R&D collaboration. Together, these steps mark the government’s move from analysis into active delivery—laying the groundwork for a more distributed, resilient, and trusted AI sector.
ORIGINAL NEWS POST:
UK AI Sector Sees Rapid Growth and Challenges in Investment, Talent Access, and Infrastructure, DSIT Report Reveals
Based on the recent “Artificial Intelligence Sector Study 2023,” the UK Department for Science, Innovation, and Technology (DSIT) highlights significant growth and challenges within the nation’s AI industry. Released on October 23, 2024, this report offers insights into the size, distribution, and economic impact of the UK’s AI sector, underscoring its role as a driver of economic growth and innovation while also identifying hurdles that may impact future development.
Rapid Growth in Companies, Jobs, and Revenue
The study reports a 17% increase in AI companies, pushing the total number above 3,000. These firms generated more than £10 billion in revenue and added £5.8 billion in Gross Value Added. Jobs grew even faster, rising 29% to more than 60,000 roles. Much of this growth came from diversified companies that use AI as part of broader business services, not from firms that specialize only in AI products.
Concentration in London and the South
Despite national progress, the AI sector remains heavily concentrated in London, the South East, and the East of England. About 73% of AI companies are based in these regions. This concentration reflects where talent, investment, and infrastructure are strongest. Still, there is notable AI activity in industries like transportation, farming, and automotive manufacturing, which operate mainly outside London.
Investment Remains Strong but Uneven
The report shows that AI revenue rose sharply in 2023, especially in diversified companies, which saw an 80% jump in AI-related income. But total investment value fell by 53% even as the number of deals stayed steady, meaning deal sizes shrank. London continued to dominate funding, drawing more than 70% of AI investment. Startups outside London struggled most, often turning to international backers for growth capital.
Scaling and Talent Challenges
Many AI startups reported trouble securing late-stage funding. Smaller companies said that limited access to skilled workers and high infrastructure costs slowed their progress. Talent shortages are most severe outside London, where high AI salaries in the capital—averaging £87,500 for AI engineers—pull skilled workers away from regional hubs.
DSIT Prepares an Action Plan
To address these issues, DSIT is developing a national action plan led by Matt Clifford. The plan will outline steps to expand digital infrastructure, open new paths to investment, and grow the UK’s AI talent pipeline. Government leaders say the goal is to make the UK more competitive in the global AI market while supporting innovation across all regions.
Frontier AI Regulation on the Way
The government has also pledged to regulate “frontier” AI systems. Announced during the King’s Speech, this approach seeks to create rules that support safe and ethical use of advanced AI models. Officials say that strong oversight will help build trust and encourage adoption across the public and private sectors.
Infrastructure Barriers Persist
The report warns that companies continue to face rising procurement costs and limited access to data centers and high-performance computing. Many firms rely on international cloud providers, which raises concerns about long-term digital independence. The study notes that a more resilient domestic infrastructure will be key to supporting future AI growth.
Need Help?
If you’re wondering how UK’s AI framework, or any other government’s regulations or bills around the world, could impact you, don’t hesitate to reach out to BABL AI. Their Audit Experts are ready to provide valuable assistance while answering your questions and concerns.
