AI and creative technology scaleups: Communications and Digital Committee report

Approximate read time: 10 minutes

On 13 June 2025 the House of Lords is due to debate the House of Lords Communications and Digital Committee report, ‘AI and creative technology scaleups: Less talk, more action’ (3 February 2025). The government’s response to the report was published in April 2025.^[1]

1. What was the background to the committee’s inquiry?

The committee launched its inquiry into AI and creative technology scaleups in September 2024.^[2] It defined ‘scaleups’ as firms that were growing at pace, and differentiated them from ‘startups’ (new businesses seeking to develop novel solutions to market gaps).^[3] The committee said its inquiry aimed to examine in greater detail the “barriers faced by UK scaleup companies” in the AI and creative industries, and what could be done to address them.

The committee noted it had published two previous reports on related subjects: ‘At risk: Our creative future’ (17 January 2023) and ‘Large language models and generative AI’ (2 February 2024). Those reports concluded the UK should take better advantage of its startup potential and remove barriers to technology companies’ ability to grow and scale within the UK.

The committee’s inquiry took place in the context of the Labour government having launched, in October 2024, a public consultation on its ‘Invest 2035’ plans for a “modern industrial strategy”.^[4] The consultation closed in November 2024. The proposed industrial strategy set out a 10-year plan to support investment in eight “high growth” sectors, two of which were within the remit of the committee: digital technologies and the creative industries.

2. What were the committee’s findings?

The committee noted the UK had considerable assets that could contribute to scaleup companies’ success, including a “strong reputation for innovation” and a “vibrant startup scene”.^[5] However, it added the UK had “consistently struggled” to enable its technology firms to transform into significant domestic businesses or world-class companies. It said reversing this trend would be “vital” to whether the government would achieve its ambitions for economic growth.

The committee said the UK risked being an “incubator economy” for other nations, as British technology firms either sought greater growth in other markets or were acquired by foreign companies. To try and address the issue, the committee said successive governments had introduced a “complex spaghetti of schemes” to support businesses, including “financial reforms, tax credits, investment incentives, and innovation-focused initiatives”.

The report stated the various business support programmes run by organisations such as UK Research and Innovation (UKRI), the British Business Bank (BBB) and government departments had “generally been welcomed”, but that they had developed piecemeal and evidence on whether they represented value for the taxpayer was “unclear”.

The committee’s main recommendations included:

• Streamline public support for innovation: The committee said the temptation for the government to add to the current landscape of business support schemes “must be resisted”. Initiatives should instead be streamlined, to provide a clearer pathway of support for scaleup companies.
• Ensure a joined-up industrial strategy: The government’s forthcoming industrial strategy “must provide a coherent, cross-sector vision” for how AI companies and the creative industries would be supported to deliver economic growth.
• Commit to AI delivery: The committee noted that in January 2025 the government had published the independent report ‘AI opportunities action plan’. The committee said the government’s response to the plan was to be welcomed, but that the government must now be “laser-focused” on the plan’s implementation by removing obstacles for home-grown AI companies. As part of this, it said there was an urgent need for publication of the government’s “long-term compute strategy”. The committee said this should include how the government intends to deliver the “broad range of computing resources required by AI scaleups, including access to high-end computing facilities”.
• Sustain investment in the creative industries: The committee said funding for innovation in the creative industries had been “disjointed and temporary”. The sector’s growth potential was unlikely to be realised without “longer-term commitments”. As part of this, the government should review its research and development (R&D) tax credits definition to include more of the creative sector.

In addition, the committee noted the government had run a consultation on copyright and AI between December 2024 and February 2025.^[6] This had included proposals for the establishment of a copyright exemption for AI developers and a new rights reservation model whereby copyright holders would need to opt-out from having their material used for training AI. Further information on the content of the consultation and concerns that have been raised about it can be found in the House of Lords Library briefing, ‘Copyright and artificial intelligence: Impact on creative industries’ (27 January 2025).

The committee noted the use of copyrighted material to train AI models without permission or compensation had “raised alarm” among rights holders. It said creative rights holders “must be able to exercise control” of their intellectual property. Clarity on the legal issues was also necessary to provide creative companies with the confidence to use AI tools for innovation. The committee said resolution of the copyright issue was “urgent”.

The committee recommended that if the government decided to progress its proposals for a “broad text and data mining exemption” for the AI industry, this “must be underpinned by strong transparency measures, technical enforceability and meaningful sanctions”.^[7]

3. How has the government responded?

The committee published the government’s response to the report on 3 April 2025.^[8] The government welcomed the report, and agreed with many of its recommendations.

The government agreed with the committee’s recommendation that encouraging creative tech businesses to grow in the UK should be a key objective of the government’s growth agenda. The government said it was committed to supporting the UK’s digital economy. It added the UK’s “scaleup problem” was complex and multifaceted, but that key factors included:

Access to finance, investor culture and attitudes, investor knowledge base and skills, the allure of foreign markets and the current prevailing exit strategies for scaling companies.^[9]

The government said the digital and creative industries would be an important part of the proposals in its forthcoming industrial strategy, which would make the UK an attractive location for technology businesses to “start, scale and stay”.

The government acknowledged that, for some technology and creative companies, accessing the “capital required to scale a business can be a challenge”. The government highlighted the pension reforms undertaken by the previous Conservative government, that sought to encourage pension funds to invest more in the UK economy, including in technology scaleups.

The government said its own pension reforms, including through its pensions review and the forthcoming Pensions Schemes Bill, would aim to encourage further investment in high growth sectors.^[10] The government also said the new ‘National wealth fund’ would “boost growth and unlock investment” in the technology and creative sectors.

On the issue of streamlining the various business support schemes and initiatives available, the government agreed with the committee that the “landscape of support” could be simplified. The government said addressing this issue would be part of the forthcoming industrial strategy.^[11] However, the government also said it was important to maintain “distinct institutions and programmes” to provide different types of support to businesses. The government gave the example of the BBB, which acts as an intermediary within the finance sector to encourage the supply of capital to businesses. The government said the industrial strategy would ensure the BBB is able to “effectively support companies at the scaleup stage”.

On AI delivery, the government highlighted its response to the ‘AI opportunities action plan’.^[12] The government said it was taking action to implement the plan’s recommendations, including work to expand the UK’s “compute infrastructure by 20 times by 2030”. It also said further updates on its compute strategy would be announced in spring 2025.^[13] At the time of writing, the government had not yet published the compute strategy.

On the committee’s recommendation that the definition of R&D tax relief should be changed to include more of the creative sector, the government said it recognised the importance of R&D in driving innovation in the creative sectors. It noted that all sectors, including the creative sector, could claim existing R&D tax reliefs for projects that met the criteria, and that there were already specific creative industry tax reliefs. The government said HM Treasury kept all taxes under review, but it made no commitment to reform the current definition of R&D tax reliefs to include more of the creative sector.

On the government’s consultation on AI and copyright, the government agreed that “rights holders should have control over and have viable routes to payment” for their work.^[14] However, although the government said resolving the copyright issue was an “urgent priority”, it said no decision had yet been made about the outcome to the consultation:

No decisions will be taken until we are absolutely confident we have a practical plan that delivers for both the creative industries and AI developers together. Particularly when considering rights reservation tools for creators, we will only move forward if we are confident that tools are accessible, easy to use and effective for rights holders of all sizes.^[15]

At the time of writing, the government had not yet published its response to the industrial strategy consultation or the copyright and AI consultation.

4. Read more

• House of Lords Communications and Digital Committee, ‘UK risks becoming an ‘incubator economy’ if we don’t take action to support our tech companies to scale up’, 3 February 2025
• Baroness Stowell, ‘Britain’s tech unicorns are galloping overseas’, CapX, 7 February 2025
• Caroline Norbury, ‘Is the UK at risk of becoming an incubator economy?’, Creative UK, 6 February 2025
• techUK, ‘techUK scaleup action plan’, 17 March 2025; and ‘Event recap: Delivering the tech scaleup ambition’, 21 March 2025
• House of Lords Library, ‘Large language models and generative AI: House of Lords Communications and Digital Committee report’, 15 November 2024
• House of Lords Library, ‘Our creative future: Communications and Digital Committee report’, 30 June 2023

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