Research and analysis

Artificial Intelligence sector study 2022: Ministerial foreword and executive summary

Published 29 March 2023

Ministerial foreword

AI has the potential to transform our economy, and our daily lives. It can help us to tackle some of the biggest challenges we face, from climate change to healthcare. It can drive innovation and growth and make our businesses more competitive on the global stage. That is why the United Kingdom (UK) is taking a leading role in advancing the development and adoption of artificial intelligence (AI) globally.

As the pace of technological progress continues to increase around the world, we are committed to sustaining the UK’s position as a global leader. That is why we identified AI as one of four grand challenges within the Industrial Strategy white paper more than 5 years ago; it is why we, working with industry, invested £1 billion in the AI Sector Deal in 2019; why we published the National AI Strategy and supported the establishment of the Alan Turing Institute, the Office for Artificial Intelligence, and the Centre for Data Ethics and Innovation. It is also why, on the 6 March, we announced a further £110 million investment to support artificial intelligence technology missions.

However, AI also raises important questions and challenges. We need to ensure that it is developed and used in a way that is responsible, transparent and accountable. Our work on AI ethics builds on the UK’s existing regulatory strengths. We will continue to ensure that we take a pro-innovation approach to the development and adoption of artificial intelligence – one that serves both industry and society and act as global advocates for the responsible design, development and use of these technologies.

We commissioned this study to provide a better understanding of the UK’s AI Sector. It provides a baseline analysis of AI activity that will contribute to future AI policy in support of innovation and growth across the whole of the UK. We now know that there are more than 3,000 innovative AI companies in the UK, generating more than £10bn in revenues, employing more than 50,000 people in AI related roles, and contributing £3.7 billion in Gross Value Added (GVA).

Through subsequent iterations of this analysis, we will continue to monitor sectoral developments, ensuring that our decision-making is grounded in a thorough understanding of the challenges and opportunities facing AI businesses.

Viscount Camrose
Minister for AI and Intellectual Property

Executive summary

The government commissioned Perspective Economics, glass.ai, Ipsos and academic experts to undertake a research study to better understand the profile of the UK AI Sector and its contribution to the UK economy. Based on a combination of extensive collection and analysis of secondary data and strategic qualitative research including a survey of 250 UK AI businesses, and 22 in-depth interviews with AI businesses and strategic stakeholders, this report provides a baseline set of data on the size and scale of the UK’s AI sector, intended to support government’s ongoing development and monitoring of key AI policies.

1.2 Headline sector metrics

The study has identified a total of 3,170 UK AI companies that generated £10,6 billion in AI related revenues, employed more than 50,000 people in AI related roles, generated £3.7 billion in Gross Value Added and have secured £18.8 billion in private investment since 2016.

1.3 Key findings

The report provides further breakdowns of these metrics across UK regions, and according to predicted AI business models and technological capabilities. Some of the most salient findings emerging from this baseline research include:

• A total of 3,170 active AI companies have been identified through the study.
• Of the 3,170 active companies identified through the study 60% are dedicated AI businesses and 40% are diversified i.e., have AI activity as part of a broader diversified product or service offer.
• Compared to similar studies into other emerging technology sectors, a greater proportion of diversified AI companies have been identified, highlighting the broad scope for development of AI technology applications by established technology companies across sectors.
• On average 269 new AI companies have been registered each year since 2011, with a peak in new company registrations in the same year as the AI Sector Deal (2018, n=429).
• Together, the data on company size and business model suggest that dedicated AI companies are both smaller and more dependent on AI products for revenue. Diversified AI companies are typically larger and likely to generate a greater proportion of revenues from less capital-intensive provision of AI related services.
• London, the South East and the East of England account for 75% of registered AI office addresses, and also for 74% of trading addresses. Just under one third of AI companies with a registered address outside of London, the South East and the East of England still have a trading presence in those regions, highlighting the apparent significance of those regions to development of the UK AI sector to date.
• While absolute numbers are smaller, the study has identified more notable proportions of wider regional AI activity in automotive, industrial automation & machinery; energy, utilities and renewables; health, wellbeing and medical practice, and agricultural technology.
• In the most recent financial year, annual revenues generated specifically from AI related activity by UK AI companies totalled an estimated £10.6 billion, split approximately 50/50 between dedicated and diversified companies.
• Across both dedicated and diversified AI companies, study estimates suggest that there are 50,040 Full Time Equivalents (FTEs) employed in AI related roles, 53% of which are within dedicated AI companies.
• Based on a combination of official company data, survey responses and associated modelling, AI companies are estimated to contribute £3.7bn in GVA to the UK economy. For large companies the GVA-to-turnover ratio is 0.6:1 (i.e., for every £1 of revenue, large AI companies generate 60p in direct GVA). GVA-to-turnover ratios among SMEs are much lower (0.2:1 for medium sized companies and negative for small and micro businesses), which reflects the capital intensive, high R&D nature of deep technology development.
• Since 2016, AI companies have secured a total of £18.8bn in private investment. 2021 was a record year for AI investment, with over £5bn raised across 768 deals, representing an average deal size of £6.7m. Further, AI investment increased almost five-fold between 2019 and 2021.
• In 2022 dedicated AI companies secured a higher average deal value than diversified companies for the first time. However, data on AI investment by stage of evolution may also be signalling some tightening of investment available to Seed and Venture Stage companies and, given the significance of private investment for AI technology development evidenced by data on revenues and GVA, this could pose a risk to realising the potential within early-stage AI companies.
• The study highlighted a notable opportunity for companies operating in the AI implementation space to build teams of AI implementation experts that can support AI adoption opportunities across sectors. This adoption opportunity is supported by investment data, which highlights that in 2022 investments were made in 52 unique industry sectors, compared to investments across just 35 different sectors in 2016.