Digital Economy Dispatch #220 -- A Response to the UK’s AI Strategy

Phew! It’s been one of those times for those of us involved with digital transformation. You wait forever for something to happen, then suddenly half a dozen things take place at once! Spurred by the political changes in both the UK and US, this week we’ve seen a barrage of announcements about investment in digital technology to drive competition and growth, how AI capabilities will be at the heart of delivering efficiencies in public service delivery, and what attitude the state will adopt to digital technology’s impact in the reshaping of our society. Big topics attracting a lot of attention.

While there is much to unpick in the details of each of these initiatives (and I strongly advise you to do so!), when we look at these announcements collectively, perhaps what we begin to see is something more profound: The broader implications of accelerated AI adoption and the fundamental questions about the impact that digital technologies will play in all our lives.

The Digital State

I would argue that the most important event this week occurred before any announcements of new AI strategies and investments were made. In a frank and sobering report, the UK government commented on the archaic technology “crippling productivity and slashing public satisfaction in services” as it issued its state of digital government review.  It makes difficult reading for those of us who have worked hard to improve government adoption of digital technology.

Briefly stated, the report concludes that the UK public sector faces major on-going digital challenges. Key findings include:

Digital Infrastructure Challenges:

• £26B spent annually on digital technology.

• 47% of central government and 45% NHS services lack digital pathways.

• Fragmented technology and underused data.

• 28% of systems are legacy technology.

Talent and Leadership Issues:

• Heavily dependent on external contractors (55% of spending).

• Digital roles underrepresented (2-6% of workforce).

• Lower compensation compared to private sector.

• Limited digital leadership at executive levels.

Productivity and Service Gaps:

• Potential £45B in unrealized savings through digitization.

• User satisfaction dropped from 79% to 68%.

• Complex service interactions (e.g., moving home requires contacting 10 organizations).

• Service reliability issues and high cyber risks.

Funding and Strategic Limitations:

• Technology spending 30% below benchmarks.

• Funding models not aligned with modern digital practices.

• Inconsistent cloud adoption.

• Limited cross-sector digital reform.

In the review, five clear areas are identified as the root causes for the challenges facing current digital transformation efforts:

1. Leadership: No incentives for digitization, reliability, or risk management. Digital doesn't drive organizational strategy.

2. Structure: Fragmented organizations build independent tech systems, preventing standardization and interoperability.

3. Measurement: Lack of consistent digital performance metrics and aggregate service quality data.

4. Talent: Uncompetitive compensation, limited career paths, over-reliance on contractors, and loss of institutional knowledge.

5. Funding: Bias towards new programs, insufficient maintenance of existing systems, and funding shifts to subscription-based models create budget pressures.

A very difficult set of admissions. Yet, it is important that the UK government took the bold move to come to terms with the digital reality that many experience. It is a context familiar to many of us working on the adoption of digital technology in the public sector.

This, then, is the acknowledged context within which AI strategy announcements must be considered and the scaled adoption of AI needs to take place. A tall order requiring significant focus, investment, and disruption to existing ways of working. How can this be achieved?

 The Way Forward for UK AI

We began to see how the UK government plans to address this question in several announcements that quickly followed on the heels of this “state of digital government” review.

In the most prominent of these, the UK Government has set out its plans for a new digital centre of government based in the Department for Science, Innovation and Technology (DSIT). As outlined in the blueprint for digital government, these structural reforms will see the Central Digital and Data Office (CDDO) being reunified with the Government Digital Service (GDS), reversing a decision from four years ago. This achieves the goal of creating a unified digital centre within DSIT.

The new-look GDS will also absorb the Incubator for Artificial Intelligence (i.AI) and the Geospatial Commission. This signals the government's intent to bring various digital functions under one roof to streamline digital strategy and delivery across government.

The government is also creating a new team within DSIT tasked with breaking down departmental silos and improving joined-up services for citizens. This team will initially focus on long-term health conditions, but its remit suggests broader ambitions to make government services less bureaucratic and more user-friendly.

A further innovation is the establishment of a Digital Commercial Centre of Excellence. This unit will assist public sector bodies in collaborative procurement, aiming to reduce costs and bureaucracy, while also stimulating the UK tech sector.

These changes come amidst the government's wider plans to publish a Digital and AI Roadmap this summer. This roadmap will set priorities for the digital centre and the rest of government, aligning with upcoming spending reviews. Notably, the Treasury is exploring new funding models that better reflect the needs of modern technology, potentially moving away from traditional short-term funding cycles.

Overall, the government's digital agenda underscores its commitment to leveraging technology to improve public services, reduce administrative burdens, and stimulate economic growth. The creation of a unified digital centre, new focus on joined-up services, and emphasis on collaborative procurement all point towards a more strategic and efficient approach to government technology.

 What Lies Beneath

However, facing up to the deeper challenges beneath these announcements will require more than structural reform. Most organizations are trapped in technological quagmires, with as much as 80% of IT budgets consumed by maintaining legacy systems. Beyond financial investments, AI infrastructure demands substantial energy and environmental resources.

There is no doubt that the last few years have seen significant progress in the digital capabilities now available. From data gathering and management using an ever-increasing range of sensors and IoT devices to enhanced algorithms for intelligent prediction and generation, we’ve seen incredible advances that have enabled a wide collection of experiments and pilot studies in almost every domain.

Yet, the recent frantic activity reveals deeper, more complex issues beyond the headline-grabbing announcements. Beneath the surface of ambitious AI and digital infrastructure projects lie critical systemic issues that demand careful examination.

Organizational Inertia and Legacy Systems

The sobering statistics described in the UK’s state of digital government review offer a window into some of the current issues. The focus of IT operating budgets is "keeping the lights on" - maintaining legacy systems and basic infrastructure. This massive overhead prevents meaningful innovation and digital modernization. The new initiatives, while promising, must first overcome entrenched technological debt that has accumulated over decades.

Infrastructure Challenges

The additional infrastructure required to power AI is not just significant - it's transformative and resource-intensive. Beyond the financial investment, there are substantial environmental and logistical challenges. Data centres demand enormous energy and water resources, raising critical sustainability questions. The environmental footprint of AI expansion could potentially counteract its technological benefits if not carefully managed.

Power Dynamics and Economic Competition

Beneath the collaborative rhetoric lies an intense geopolitical and corporate battle for technological supremacy. Companies like OpenAI, Microsoft, Amazon, and national governments are engaged in a high-stakes competition to control AI infrastructure. This isn't just about technological development, but about economic dominance, strategic positioning, and potential monopolistic control of future digital ecosystems.

Ethical and Societal Implications

Perhaps the most profound underlying issue is the potential human impact. There's a fundamental tension between technological progress and personal agency. Is AI being implemented to genuinely improve society, or is it a mechanism of control that might further marginalize individual choice? The risk of AI "being done to us" rather than developed with meaningful public consultation is a critical concern.

 A Call to Active Citizenship

So, while considering the latest wave of AI announcements, a primary issue is brought to the forefront. As AI reshapes our world, we are reminded that we cannot be passive recipients. We must:

• Stay informed about technological developments.

• Ask critical questions about the purpose and impact of new technologies.

• Advocate for responsible, ethical innovation that genuinely improves human lives.

• Recognize that technological progress should enhance, not replace, human potential.

The latest announcements make it clear that AI will play and increasingly central role in the future of the UK’s economy and public service delivery plans. The rapid advances in AI capabilities will power much of the reshaping of UK society for this digital age. But only if it can overcome the significant barriers being facing the shift to more digital ways of working.

As the struggle plays out, we all have a role to play. AI-driven digital transformation isn't something happening to us—it's something we collectively shape. By maintaining our critical thinking and human-centric values, we can ensure that AI becomes a tool of empowerment, not constraint.

Drill deeper. Question boldly. Innovate responsibly.