James Hutt
Consultant at Paradigm Junction
The UK needs to find some growth, you’ve probably heard.
One of the Government’s key hopes is that investment in AI, and the infrastructure that enables it, will act as a catalyst for improving living standards and a central pillar of our defence strategy.
But current priorities – notably, the focus on data centres and the surrounding AI Growth Zones – risk missing the mark. Two factors are distorting the debate.
The first is a well-intentioned focus on Value for Money (VfM), which encourages public bodies to buy what they need at the cheapest available price, typically from established suppliers, few of them British.
The result is a procurement environment that suppresses domestic investment and fails to build long-term strategic foundations.
The second is a concept of “sovereignty”, inherited from a decade of privacy arguments. It overemphasises where computers are located and underplays who benefits from controlling them.
Technology, harnessed well, offers economic returns in peacetime and strategic leverage in moments of international competition.
The ability to make decisions in these moments is a function demonstrating far more than where data is located, though existing arguments for sovereignty often overlook this.
This tension is coming to a head. The Strategic Defence Review and Industrial Strategy have already made the case for stronger UK AI capability.
An infrastructure roadmap, promised in the AI Opportunities Action Plan, is still to come. Ministers will soon make decisions that shape the future of the UK’s economic resilience and security.
To do so wisely, they will need to expand what counts as an “investment” and rethink what we mean by “returns”. That means backing capacity-building projects, not just those with immediate, measurable outputs.
There are tools available: advanced market commitments, subsidised compute access for UK firms, Strategic Value Multipliers in procurement, and support to retain skilled, security-cleared workers.
Each would mark a shift in approach. But if we want resilience, not just efficiency, we must be prepared to invest for the long term – even when the benefits are intangible or delayed.
It begins with a simple question: what counts as investment in the AI space?
Departments operate within two budgets: Capital (CDEL) and revenue (RDEL). Capital spending must create an asset with a measurable return, typically one that benefits the sponsoring department directly.
The aim is to avoid waste – but in practice, this narrows investment to projects with internal, short-term payoffs.
The result is a structural blind spot. Broader benefits, like building UK supplier ecosystems or upskilling the workforce, don’t show up in departmental accounts, even when they’re critical to national capability.
Yet these are exactly the gains that matter if the UK wants meaningful control over AI.
If the UK were a company, perhaps it would make sense for budget holders to ignore the growth of intangible assets like skills or IP at other firms. But we are not a PLC. We are a country. And those intangible benefits are real. If we allow them to accrue here, they will reduce costs and improve outcomes across the public sector.
If we don’t, they will accrue overseas; we will be dependent on foreign suppliers to build and maintain the infrastructure on which our economy and security increasingly rely.
Those suppliers will collect the profits, wield the influence and retain the strategic leverage. Over decades, these advantages reinforce each other, compounding to create high-skill and high-wage clusters that the UK sorely lacks.
Sovereign AI capability won’t show up on a department’s balance sheet – but we can choose to invest in it. That means accepting that some high-ROI projects won’t emerge from usual cost-benefit logic.
Take pathogen monitoring in wastewater, it sits idle for long periods, but becomes critical when a crisis hits.
The same goes for strategic reserves of oil or other assets – low ROI most of the time, but invaluable when it matters. It’s why we subsidise domestic steel – to retain skills and capacity when markets fail.
In the context of building a strategic supplier and skills reserve, this will mean allocating capital to departments that would otherwise buy from abroad, enabling them to buy British instead.
It means funding projects that may be marginal but that strengthen the industrial base over time. This is not an abstract idea.
China captured over 60 per cent of the global EV market in 2023 by investing not just in final products, but in the infrastructure, skills, and R&D that made them globally competitive.
Take the NHS. When it invests in developing AI-powered tools, that investment doesn’t just improve patient services.
It also creates new supplier capacity, helps retain skilled developers in the UK and contributes to the IP base needed for future defence or security applications.
The MoD might benefit from these tools and suppliers. These benefits are not booked to the NHS’s account. As a result, they go unrecognised.
The result is a public investment regime that ignores some of the most strategically important outcomes we could be pursuing.
There are ways to fix this. We can create a new model of ROI that allows departments to access top-up capital when they deliver whole-of-government or national benefits, not just internal efficiencies.
This is not a call for everything to deliver on every priority (a trap Joe Hill has aptly called “Everythingism”). It’s a call for clarity.
If sovereignty matters, let’s be explicit about paying for it. If strategic ecosystems matter, let’s subsidise them. If flexibility matters, let’s be willing to accept some inefficiency in the name of resilience.
A genuinely sovereign AI capability – one that works when markets fail and creates value when they function – won’t come from isolated projects, each assessed on narrow terms.
As the UK prepares to deploy billions in AI-related infrastructure, we must not only choose the right technologies, we must also choose an investment model that rewards national benefit, not just internal efficiency.
That means backing UK supply chains even when they’re not the cheapest, and placing value on things we can’t touch – trust, talent, and time.
The UK has many natural advantages: a world-class university sector, internationally respected regulators, and a strong record of institutional innovation.
However, without the right investment model, those advantages will leak away. A real national strategy would spend not just on machines, but on the conditions for people to succeed with them – and to succeed here.
The future of British sovereignty in AI will not be decided by where our servers sit. It will be decided by who builds, controls and profits from them. Those investment decisions are being made now.
