Labour bets £1.1bn on Britain’s AI chip race
Keir Starmer’s government has unveiled a £1.1bn package aimed at turning Britain into a global AI hardware powerhouse, with ministers backing domestic chipmakers and pouring capital into training the next generation of engineers.
The new AI Hardware Plan, announced at London Tech Week by tech secretary Liz Kendall, includes £750m for a new national AI supercomputer and £400m earmarked for next-generation AI chips.
The minister also unveiled a record British Business Bank commitment to a specialist tech investment fund.
The announcements form the latest part of ministers’ efforts to push Britain further up the AI value chain, shifting focus from software and applications towards the hardware and infrastructure underpinning the AI boom.
“AI is the defining currency of economic and hard power in today’s world and the countries that control the hardware behind it will hold the keys to the future,” Kendall said.
“The UK is already a global leader in chip design, and I believe this is a race Britain can win.”
The announcements come as governments around the world scramble to secure computing power and semiconductor supply chains, with AI increasingly viewed as both an economic and national security priority worldwide.
Kendall added: “That is exactly what this plan does, backing the British firms developing the next generation of AIhardware, so we get more jobs, more growth, and more control over the technologies our future depends on. We are backing Britain because we believe in Britain”.
Britain’s AI infrastructure push
At the centre of the announcement is a £750m investment in a new national AI supercomputer, which ministers say will become one of the world’s most advanced computing systems when deployed by 2030.
The machine will combine multiple types of processors and specialist AI chips, joining existing UK facilities including Isambard-AI in Bristol and Dawn in Cambridge as part of the government’s expanding AI Research Resource.
Of that sum, £400m will be spent on advanced chips, including £150m committed this summer to buying new inference chips – the processors responsible for running AI systems once they are trained.
The government hopes acting as an early customer will help create demand for British chip firms at a crucial stage of development.
The strategy lands amid growing recognition that access to compute has become one of the biggest bottlenecks in AI development.
Training and deploying frontier models requires vast processing power, while demand for specialist chips has surged globally.
Just four months ago, the Department for Science, Innovation and Technology (DSIT) began preparations for a separate £250m expansion of the UK’s AI cloud computing capacity, part of a broader ambition to increase Britain’s AI compute resources twentyfold by 2030.
Britain’s next AI champions
Alongside the infrastructure spending, ministers are launching a new £120m AI hardware innovation programme designed to help British startups design, test and commercialise next-generation chips.
At least £20m will be directed towards expanding the Scaling Inference Lab, delivered through ARIA and Common AI, which helps companies prove emerging hardware technologies and attract investment.
Among the beneficiaries is British startup Oriole Networks, which is developing optical networking technology that uses light rather than electrical signals to move data between chips – an area increasingly seen as critical as AI systems become more compute-intensive.
The government is also backing a new UK-based investment vehicle led by Silicon Valley venture capital firm Playground Global.
The fund will receive up to £150m from the British Business Bank – the largest single fund commitment in the institution’s history – and will focus on scaling UK AI hardware companies.
Playground’s partners include former Intel chief executive Pat Gelsinger, who said: “The UK is home to some of the world’s best innovators.”
“Playground will bring our deep technical expertise, Silicon Valley presence and global network to help early-stage UK companies scale into the next AI powerhouses.”
The government hopes the initiative will help prevent promising British companies, like Deepmind or Deliveroo, following the path of previous tech successes that scaled overseas.
Skills drive targets talent gap
The package also includes £45m of new skills funding aimed at tackling growing shortages of semiconductor engineers and AI hardware specialists.
A new £12m Centre for Doctoral Training in Chip Design will be established, while undergraduate semiconductor bursaries will increase from 300 this year to 500 annually by 2028.
The government will also expand its Tech First programme, providing support for an additional 500 PhD students working in strategically important areas such as chip design and AI hardware.
Andy McLean, chief executive of UK Semiconductor Centre, said: “It is encouraging to see the government matching that ambition with new investment and a clear focus on accelerating knowledge, skills, scale and deployment.”
“We look forward to working with government, industry and the wider ecosystem to help translate this vision into tangible outcomes for the UK.”
Arm, whose processor designs underpin much of the world’s computing infrastructure, has signed a new partnership with government to support semiconductor skills development.
The emphasis on hardware comes as investors increasingly shift attention beyond large language models towards the infrastructure needed to power them.
Fractile, the Oxford-based AI chip startup that recently secured $220m in funding, as examples of a new generation of British companies attempting to challenge established global players.
The wider UK AI sector is already attracting record levels of investment.
London recently reclaimed its position as Europe’s leading technology hub after startups in the capital raised $17.7bn last year, while UK AI firms secured £8.3bn in funding during 2025.