One year on from the launch of the government's ambitious AI Opportunities Action Plan, the UK's artificial intelligence sector presents a picture of stark contrasts: remarkable private investment success hampered by critical infrastructure and policy bottlenecks.
Private Investment Floods In, But Public Backing Lags
Fresh data reveals the scale of private capital flowing into British AI. According to the Startup Coalition's AI index, the UK's leading AI firms have secured over £20bn in private funding, achieving a combined valuation exceeding £45bn. The sector-specific application of AI is proving particularly strong, with business services, financial technology, and healthtech driving unprecedented growth.
"The UK is already a leader in the application layer," stated Vinous AIi, deputy executive director of the Startup Coalition. He urged the government to "double down on where we are already winning."
However, this private sector confidence masks a significant shortfall in state support. Of the £20.2bn total raised, a mere £456.5m (just 2.2%) originated from government sources. This stands in deliberate contrast to nations like France, which actively use public co-investment to de-risk strategic scale-up technologies.
The funding gap emerges early in the innovation pipeline. University spin-outs, a traditional UK strength, still surrender an average of 16.1% equity to their parent institutions, a rate that remains high internationally and can deter later-stage investors. In response, the Startup Coalition is advocating for a tiered equity cap to protect promising research.
Infrastructure Emerges as the Critical Bottleneck
If funding is one challenge, compute capacity and energy infrastructure represent a far more pressing and high-risk constraint. The gold rush for AI compute has seen investors scrambling to secure data centre sites, from old hotels to former coal mines. Applications for new data centres in England and Wales hit record levels in 2025.
Yet, the reality of connecting these facilities to the national grid is causing severe delays. Developers routinely face wait times of eight to ten years for a grid connection, especially around London and the South East.
"Ambition and delivery are not yet aligned," said Ben Pritchard, CEO of data centre power supplier AVK, highlighting that growth is "held back largely by constraints around power availability."
The government's proposed solution, the creation of dedicated AI Growth Zones, is progressing slowly. Of the four announced zones, only one has begun preliminary ground preparation, with most not expected to deliver meaningful capacity before 2026.
Tax and Regulation: The Unresolved Questions
Beyond infrastructure, fiscal policy is quietly applying a brake on scaling companies. The Startup Coalition has proposed a reformed corporation tax system where firms pay zero tax on reinvested profits, being taxed only when cash is distributed to shareholders.
On regulation, ministers have maintained a principle-led, guidance-based approach, a conscious divergence from the EU's more prescriptive AI Act. While businesses appreciate the flexibility, contentious issues like copyright and data-scraping rules for model training remain unresolved, with creative industries pushing back hard against proposed relaxations.
Stuart Abbott, UK managing director at VAST Data, cautioned against an "AI sugar rush." He argued that for lasting success, the UK must treat AI infrastructure as critical economic infrastructure, prioritising energy, data storage, pipelines, and skills.
Measured purely in capital raised, the first year of the AI Action Plan has been a success, cementing Britain's position as Europe's most attractive AI market. However, the path to becoming a genuine global superpower is now clearly dependent on solving the fundamental issues of grid access, supportive tax policy, and efficient spin-out commercialisation. The alignment of ambition with delivery remains the government's paramount challenge.
