Real talk: UK Seriousness

Unserious leadership produces unserious outcomes. Swing bigger.

In his budget speech yesterday, UK Chancellor Jeremy Hunt declared that the UK was “on track to become the world’s next Silicon Valley”. Against a backdrop of stagnating VC funding, an exit market in the advanced stages of rigor mortis, and sustained political hostility to the technology sector, this struck us as bold. 

As the government’s last major fiscal event before the upcoming general election, this was essentially their final opportunity to swing big for the UK’s tech sector. Did they rise to the occasion? 

Missing the mark

In our estimation, he unveiled a package devoid of ambition or resources, seemingly designed to avoid tackling any of the real problems faced by people trying to build AI-first companies in the UK.

In the past, we’ve written about government technology investment that’s simultaneously expensive and unimpactful.

Increasing funding for the Alan Turing Institute, the UK’s national data science center, to £100M, is a classic example of this. Bluntly, very few people who are not directly employed or funded by the Institute take it seriously and it wholly failed to prepare the government for the GenAI explosion of the past few years. This is why the Tony Blair Institute has recommended all but shuttering it. Government would have received a better (and entirely free) briefing on advances in NLP and the power of the transformer architecture from reading the State of AI Report. 

The Budget also included measures designed to boost the UK’s capital markets. In addition to last year’s agreement aimed at increasing pension funds’ investment in venture capital, the Budget will force some pension funds to publicly disclose their split of UK and international investments. As far as we can tell, the objective is to pressure funds to invest more of their assets into UK equities, correcting the “valuation discount” versus the US, and creating a stronger exit market for companies. 

We’re old-fashioned and believe that asset managers should make investments based on what they believe is in the best interests of their clients, not because they’ve been accused of being unpatriotic by the Treasury. Far less attention is being given to the question of why UK-listed shares don’t attract more interest - possibly because the government may not like the answer...

But the most galling part of the Budget for us was not the tech-related announcements. 

Buried in the small print, the Treasury acknowledged that not only would UK defense not receive additional funding, elements of its budget would face actual cuts. Its capital departmental expenditure limit will be slashed from £20.3 billion in 2022-23 to £18.9 billion in 2024-25. This follows on from the news that the UK’s drone squadron has not conducted a single test since being formed in 2020, due to funding shortfalls. In the context of poor UK defense readiness, an ongoing European conflict, and our action in Yemen, this is mystifying.

The purpose of a system is what it does

So where does this gap between the UK’s science and technology rhetoric and action come from?

Team Air Street have attended three events in London in recent months that each give us a piece of the puzzle.

Starting with the most recent, Alex attended a conference focused on the application of AI in a national security context. An investor with insight into UK policy thinking argued that there was a strong cultural bias against taking advances in AI seriously. Especially in contrast to the Bay Area, it’s ‘cool’ to be sober about technology in the UK, rather than excited about its transformative potential. This leads to complacency in policy-making.

Alex was also at a ministerial roundtable focused on helping start-ups to access compute in the UK, potentially through a national cluster. While there was agreement in the room about the importance of this work and the potentially positive role, the discussion did not address the elephant in the room: the absence of a national compute cluster or a serious plan to build one. 

While the Budget and other official documents routinely reference a £1.5 billion investment in future UK compute capabilities, the government has never published an itemized list of these commitments. We believe that ‘future compute’ has likely been defined rather broadly. As far as we can tell, the majority of this money will go into one facility in Edinburgh, which will not, alongside any of its other investments, be open to entrepreneurs. 

Last year, Nathan was in front of the House of Lords Communications and Digital Select Committee to discuss the LLM opportunity in the UK. The theme of his evidence was that the UK needed to be more ambitious, in terms of both investment and fundamental reform. This received pushback from a senior member of the committee on the grounds that many other European countries faced the same challenges. 

What do these three events tell us? 

In short, the UK can’t decide how serious it is about AI leadership. Against a dire economic backdrop, the government is scrabbling around for a science and technology future that simultaneously requires i) little upfront investment ii) no institutional change iii) no risk. 

A serious vision of technology leadership would involve:

• A vast upscale in our compute ambitions, while opening up access to this infrastructure to innovative start-ups

• Wholesale procurement reform, so start-ups aren’t locked out of working with the country’s biggest customer

• Opening up access to government data to innovative start-ups so they can build systems that can tackle crucial challenges for the public sector

• Reform to the early-stage VC ecosystem to reduce the burden on new funds, encouraging specialists or former operators to enter the sector

• An end to British Business Bank subsidy for VC incumbents or meandering startups, and the reallocation of funds to support strategically important winners

• Copy France is creating a competitive offer for overseas founders to build their business in the UK, including tax breaks and discounts on hardware

• A line-by-line examination of current recipients of technology-focused funding from the government to determine if they’re builders or merely lobbyists.

We’re not denying that this would involve significant upheaval. Not only does the UK have all the raw ingredients to do this, the upside would be tremendous. However, while those in authority radiate unseriousness, the system will behave unseriously. 

Technology leadership will turn into subsidizing an ineffective data science institute and browbeating pension funds into buying more Rio Tinto shares. A commitment to spend 3% of GDP on defense will turn into reductions in capex. And we’ll all have a friendly conversation about the best way to allocate resources from a compute cluster that doesn’t yet exist.