IoD welcomes announcements on AI, devolution and funding, but Budget must do more to unleash private sector

“The government’s announcements of £20.4bn in additional capital for the National Wealth Fund and British Business Bank, greater powers and funding for local leaders, reforms to public investment appraisal and new support for AI represent welcome progress towards an investment-led growth strategy. Together, they address several important priorities in the Institute of Directors’ Budget submission.

“We welcome the additional capital for the National Wealth Fund and British Business Bank, which should help mobilise private investment, bring forward infrastructure projects and improve access to finance for growing businesses. The expansion of equity financing and introduction of venture debt are particularly encouraging for innovative firms seeking to scale. This approach makes use of flexibilities in the government’s fiscal framework but could still add to market concerns over UK borrowing and debt. Strong commercial discipline will be essential to ensure that these investments generate appropriate financial returns and genuinely additional private investment, rather than simply increasing risks to the public balance sheet.

“The devolution proposals are encouraging, particularly the move towards more flexible local investment funding and the Green Book reforms that will allow complementary investments in housing, transport, skills and infrastructure to be assessed together. The announcement of £150m to strengthen local institutional capacity and capability is perhaps more important. Giving local leaders greater financial resources and decision-making powers only yields better outcomes if they have the knowledge, expertise and institutions to deploy them effectively. This requires strong analytical, financial and commercial skills, reliable local economic data, meaningful, early and regular engagement with businesses, and clear accountability for outcomes. The government’s recognition of the need to build these capabilities is welcome, but further detail is needed on how they will be developed and sustained. Without them, greater devolution risks adding complexity and cost rather than delivering the productivity gains and additional private investment it is intended to unlock.

“The AI package responds to several of our priorities. Additional investment through the Sovereign AI Fund and R&D procurement should help promising British AI companies commercialise their innovations and scale, while the local AI partnerships recognise the importance of supporting adoption across the wider business population. We also welcome the investment in cyber resilience and the AI Economics Institute’s work to understand AI’s economic impacts. However, there remains a significant gap between supporting cutting-edge AI innovation and helping businesses throughout the economy realise its benefits. Our submission called for a coherent national offer for SMEs, practical sector-specific skills development including for business leaders, stronger support for responsible AI governance and more effective pathways from innovation to commercial deployment. The £30m for local partnerships is a useful start, but the scale and accessibility of support will be critical if AI is to deliver widespread productivity gains.

“Taken together, these announcements represent positive steps towards improving the finance, institutions and infrastructure supporting growth. But they represent only one side of the equation. The government is embarking on significant reorganisation of the state at a time when budgets are tightening and in areas which are expected to deliver over a 10-15 year horizon. The real test for this Budget will be whether it can unleash animal spirits in the private sector in the here and now. Recent announcements on regulation and reporting represent helpful moves to remove costs. A competitive and predictable tax system, proportionate regulation, manageable employment costs and affordable energy remain the most important ingredients for near-term growth. The Budget must give businesses the confidence and incentive to invest, innovate and expand.”