TL;DR
The UK government will offer guaranteed advance payments totalling £100 million to British start-ups producing AI inference chips, using a “first customer” model similar to Covid vaccine procurement. Science Secretary Liz Kendall positions the commitment as supporting sectors where Britain has competitive advantages—life sciences, financial services, defence, and creative industries—despite acknowledging the sum is modest compared to US and Chinese investment levels.
Advance Market Commitment for British Chip Development
The Department for Science will commit to purchasing AI inference chips from UK companies that meet set performance standards, providing demand certainty for emerging hardware producers. Kendall describes the approach as “government showing leadership in the areas where we think we will be absolutely world-leading,” targeting applications in sectors where Britain maintains established strengths rather than competing directly with larger US and Chinese investments.
The context underscores the challenge: the UK’s AI market is valued at over £72 billion (third globally after the US and China), yet 2024 private AI investment reached $4.5 billion in the UK versus $109.1 billion in the US, according to the Stanford AI Index. Kendall did not provide precise details on the advance payment mechanism’s structure but indicated “cutting-edge chip companies” would receive guaranteed purchases once technology reaches specified standards.
The announcement forms part of a broader AI package designed to strengthen tech infrastructure and signal Labour’s sector support ahead of next week’s Budget, expected to raise taxes on wealthy individuals. The government has pursued “strategic partnerships” with US companies including OpenAI and Anthropic, attracting foreign investment in UK AI infrastructure and talent in exchange for public sector technology adoption.
Sue Daley of TechUK welcomed the “real ambition” whilst cautioning: “Advanced market commitments of this kind must be designed carefully to avoid unintentionally distorting competition.” The government also announced James Wise, a venture capitalist at Balderton, will chair the £500 million sovereign AI unit backing start-ups alongside the British Business Bank.
Looking Forward
The “first customer” model’s effectiveness depends on execution details not yet disclosed—performance standards, payment structures, competitive access mechanisms. The procurement approach mirrors successful Covid vaccine strategy but faces a different market structure: AI chips compete in established global supply chains with dominant players, unlike pandemic vaccines where government demand unlocked new production. Whether £100 million provides sufficient demand certainty to shift start-up investment decisions, or whether it serves primarily as industrial policy signalling, will determine if the mechanism catalyses meaningful domestic chip development or remains symbolic support.
Source: Financial Times