UK seeks growth via AI ‘lab’ and regulatory bonfire

Proposals for a new AI Growth Lab to be established form part of a broader suite of measures the government hopes will lower regulatory costs for businesses operating in the UK and drive productivity and growth – it is seeking to cut regulatory costs facing businesses by £22.4 billion between now and the end of the current parliament in 2029.

Beyond setting out plans for the new Lab, the government set out a range of actions that it and regulators intend to take to address three broad aims: tackling the complexity and burden of regulation; reducing uncertainty across the UK’s regulatory system; and challenging risk aversion.

Examples of action promised include a streamlining of corporate reporting requirements, measures to support commercial drone operations by 2027, and a suite of further planning reforms – including a planned shift to a rules-based approach to planning in England, to speed up decision-making; modernisation of the digital certification process for energy infrastructure planning applications; and the piloting of a streamlined approach to environmental permitting for the major redevelopment project in Falmouth Docks. The government is also intending to reform the growth duty it imposes on UK regulators and increase transparency and accountability around the regulators’ performance against related key performance indicators.

Other specific reforms that the government said it will take forward include changes to the system of merger review that currently operates.

The government said it will “consult in the coming weeks on proposals to provide greater certainty for businesses on whether transactions will be subject to merger control; proposals to ensure remedies are regularly reviewed; as well as changes to how the CMA [Competition and Markets Authority] makes decisions in mergers and markets investigations”. Those reforms, it added, would include “replacing the CMA’s panel model for decision-making by replicating the Digital Markets Board Committee model, for both the CMA’s mergers and markets functions”. It said the changes “will not alter the independence of CMA decision-making” from government.

Competition law expert Paul Williams of Pinsent Masons said the announcement builds on the UK government’s ‘strategic steer’ to the CMA earlier this year, emphasising the importance of economic growth and investment in the UK, and the government’s initial proposals to reduce regulation.

Williams said: “The CMA has already responded to this agenda by embedding new ‘4Ps’ principles – to improve pace, proportionality, predictability and process in its merger control functions and across its wider competition and consumer work – and has undertaken wide-ranging consultation on updating its guidance, including proposals for a more flexible approach to merger remedies. This evolving CMA approach looks to be further developed by reforms the UK government is now contemplating. Whilst the government strives for a more business-friendly regime to drive dealmaking, growth and investment, it will need to ensure the CMA’s independence and competition oversight role is safeguarded.”

The government has also invited businesses to have their say on what further regulatory reform it should pursue in future – including by highlighting specific “examples of specific rules that impose unnecessary costs or burdens” and by detailing how the way regulations are applied can “delay or prevent future business opportunities being taken up”. Businesses can provide their input via an online questionnaire up until 16 December.

Public policy expert William Hall of Pinsent Masons said: “With the government preparing for the crucial upcoming Budget, this regulatory reform package is one of many levers chancellor Rachel Reeves is pulling in an effort to boost economic growth.”

“Prime minister Sir Keir Starmer and his team have put effective delivery at the heart of their political vision for the country. They view economic growth through streamlined regulation, attracting investment and careful intentions as the key way to prove to the electorate that they have succeeded in delivering,” he added.

In relation to its AI Growth Lab plans, the government said the initiative will be modelled on existing regulatory sandboxes – such as the pioneering fintech sandbox run by the Financial Conduct Authority – but would be operate in a more dynamic fashion by providing for AI testing in response to specific innovation arising in the market.

This, it said, would “enable businesses and regulators to trial novel AI products and generate real-world evidence of their impact” in “live market environments with targeted regulatory modifications”. That testing would be undertaken with regulatory supervision and, the government said, could speed-up regulatory approvals and potentially drive “permanent” regulatory reforms.

Initially, the government said, AI Growth Lab sandboxes would be focused on supporting AI innovation in sectors prioritised in the UK’s modern industrial strategy – which includes advanced manufacturing; digital and technologies; financial services; life sciences; and professional and business services. However, the government said the Lab will be designed on a “cross-economy” basis.

New legislation would have to be introduced to enable any regulatory modifications envisaged for the ‘Lab’ testing. According to the government, there will be some regulatory requirements that will not be able to be modified in Lab testing. Its initial view is that ‘red lines’ to be drawn would “include consumer protections, safety provisions, fundamental rights, workers’ protections, intellectual property rights”. The government has asked industry and other stakeholders to share their views on the proposals.

The government said that 60% of businesses that responded to questions it posed in its technology adoption review last winter said regulatory and policy obstacles are a barrier to AI adoption.

Technology law expert Luke Scanlon of Pinsent Masons, who specialises in fintech regulation and contracts, said: “It is interesting to see the government highlight the importance of making statutory modifications to deliver better economic results. However, as is often a discussion point in these contexts, there needs to be more clarity around what the liability framework is if something goes wrong. The more clarity that can be provided on this, the more likely it is that businesses will invest significantly in this opportunity.”

“Similarly, businesses need clarity around what happens to their investment once engagement with the Lab is over. You can see a situation where a business invests significant time and resources only to find that the modified statutory framework is not going to be adopted after all. Hopefully, this will also be clarified through the call for evidence process,” he said.