Tax credits would show Starmer is serious on AI
Just over two months ago at University College London, Sir Keir Starmer stood at a podium emblazoned with "PLAN FOR CHANGE" in bold white letters on a Labour-red background.
Dressed in a sharp navy suit and sage green tie, he called AI "the defining opportunity of our generation."
But speeches alone won’t cut it. Britain needs bold action, starting with a 30 per cent tax credit for AI firms and cuts to Capital Gains Tax (CGT) on long-term AI investments, replicating the success of making Britain a world leader in the film industry thanks to hyper-targeted tax relief.
Without bold policies, Starmer’s words will fall flat.
After more than 200 days in office, the big question remains: will Starmer turn his vision for growth and prosperity into reality, or will it become just another broken promise in the graveyard of British politics?
Labour's AI Opportunities Action Plan does offer reasons for optimism. It features ambitions for AI growth zones and the automation of NHS processes. However, the real test isn't in the planning, but in the execution. Without significant private sector investment, these ideas might join the ranks of unfulfilled promises.
The UK spent £70.7 billion on research and development (R&D) last year, according to the Office for National Statistics. While we don’t have AI-specific figures, it’s reasonable to estimate that 10 per cent - or £7 billion - was directed into AI, based on OECD data.
Raising R&D tax credits from 20 per cent to 30 per cent could add £2.1 billion a year into research. Cutting Capital Gains Tax (CGT) on AI investments from 20 per cent to 10 per cent would cost between £362 and £725 million annually, based on the £14.5 billion collected in CGT last year, assuming AI makes up 5-10 per cent of investments.
The data shows that AI, while growing fast, remains a small part of the wider investment market. Together, these measures would boost research funding and attract investors, driving the next wave of AI innovation in the UK.
But this isn't merely a bean-counter's game; it's about reversing Britain's decline in the global tech space.
The London Stock Exchange faced a mass exodus last year, with 88 companies bidding adieu, the highest tally since the financial crisis, while only 18 new entries graced the list. Why? Because across the pond, they are rolling out the red carpet with valuations which make ours look like pocket change.
Monzo's flirtation with a New York IPO and Arm's 2023 decision to list on Nasdaq are not just footnotes; they are headlines in the tale of our tech credibility's decline.
Arm, now a $164 billion behemoth, is a glaring reminder of what we've lost.
Meanwhile, Trump's recent announcement of the $500 billion "Stargate" project, involving Softbank's Arm, OpenAI, Oracle, Microsoft, and NVIDIA, starting with a $100 billion for 20 data centres in Texas, shows the scale of ambition we are up against.
Labour's net zero obsession is not helping, either.
Training a single AI model consumes more electricity than 100 US homes in a year. With our sky-high energy costs, it's no wonder our AI companies are eyeing greener pastures.
The Stanford AI Index Report of 2024 paints a stark picture: the US attracted $67.2 billion in AI investments last year alone, compared to our meagre $3.78 billion.
To make matters worse, since 2013, they have raked in a staggering $335.2 billion, leaving our $22.3 billion looking like a drop in the ocean.
With Microsoft and Accenture projecting generative AI will boost US productivity by a jaw-dropping $3.8 trillion by 2038, the gulf between ambition and impact could not be clearer.
These numbers are not just grim; they are a wake-up call.
To claw back, Britain needs a flagship AI project – a “BritGPT” – to invigorate the sector and show we’re in the running. However, such ambitions come with hefty price tags that our coffers are currently ill-equipped to bear. That’s where tax credits come in.
It is rather embarrassing that when the US has ChatGPT and China boasts DeepSeek, we are left twiddling our thumbs.
Starmer's vision needs to leap from the podium to the pavement.
If AI truly is "the defining opportunity of our generation," then it is time for Britain to act like it, with deeds not just declarations.
Daniel Fessahaye is a freelance business journalist and a political commentator with Young Voices UK.
