AI adoption by small businesses could boost UK economy by £78 billion | Microsoft report

Take-up of AI technology could give the UK’s smaller businesses a competitive edge, drive high-wage job creation and fuel economic growth across the UK, new Microsoft research shows. But unlocking the potential will take ‘co-ordinated action’ at a national and regional level.

AI could help boost productivity, innovation and competitiveness for small and medium-sized businesses (SMEs) in the UK to the tune of £78 billion in added economic value over the next decade.

This is one of the findings of new research from Microsoft and policy consultancy WPI Strategy. The report – Unlocking Regional Growth: The impact of AI adoption by SMEs – reveals the extent to which generative AI (GenAI) tools such as Microsoft 365 Copilot could supercharge small businesses by streamlining tasks ranging from document drafting to book-keeping – and fuel economic growth.

Commenting on the report, Feryal Clark MP, Parliamentary Under-Secretary of State for AI and Digital Government said: “Generative AI is a gamechanger, not just for the big players, but for small businesses and communities in every corner of the UK.

“This research highlights the huge potential generative AI offers smaller businesses when they get the support they need to use it – cutting admin, saving time, and ultimately driving growth.”

But more needs to be done at a national and local level to help SMEs – which make up 99% of UK businesses – realise the full potential of AI, says Hugh Milward, Vice President, External Affairs at Microsoft.

“Small businesses are the backbone of the UK economy, but without targeted support, the country’s ambition for growth will falter,” he notes.

“The £78 billion opportunity isn’t just a number – it’s growth that should be felt in communities from Kent to Cumbria. To unlock it, we need co-ordinated action from government, regional mayors, and industry to put the transformative benefits of AI into the hands of the people and businesses driving regional growth.” 

Regional growth opportunity

AI adoption by small businesses could have a big impact on growth across the UK, the report finds.

In West Yorkshire – home to a large number of companies in high-growth sectors such as life sciences and advanced manufacturing – the regional economy would see a £4.6 billion uplift by 2035.

Meanwhile, the Liverpool area would see £2.8 billion added to its economy in the next decade and the Cardiff region would benefit from a £2.4 billion boost to its economy.

But the report also highlights that fewer than one-in-five UK SMEs have currently adopted AI and that the rate of take-up has not kept pace with government predictions.

It warns that smaller businesses risk losing out to larger organisations that are already embedding AI in their operations, a concern that Steve Rotheram, Mayor of the Liverpool City Region echoes.

“AI is already reshaping the world – and with the right investment, support and guardrails, it has the power to do a lot of good,” he says. “But we’ve got to make sure it’s not just the big firms that benefit.”

Removing barriers

While the business and economic potential that AI offers is immense, the research cites several barriers that are hindering adoption by SMEs. These include an AI skills gap and limited capacity to trial, implement and embed AI in everyday work processes.

This is one of the reasons why Microsoft is engaged in an international AI Skilling initiative and has partnered with Founderz to offer AI skilling specifically tailored to SMEs.

Inconsistent access to digital connectivity and finance for growth are also slowing take-up of AI at a regional level, the report says.

Even in regions where access to superfast broadband is widespread, disparities in connectivity persist. In Liverpool, a tenth of businesses don’t have access to the basic internet connectivity required to work with AI, researchers found.

And while just under a third of SMEs across the Cardiff region count investment in new software among their priorities for the next 12 months, two fifths aren’t confident they will be able to finance this and other spending on businesses growth, the findings show.

Support roadmap

To ensure that businesses large and small across all regions of the UK benefit from the opportunities presented by AI, the report sets out a roadmap for SME support that includes both regional and national initiatives.

“Recommendation 1: Create regional ‘AI champions’ across the four nations and put AI at the heart of all Local Growth Plans “

It highlights the role that regional AI champions could play in driving improvements to digital infrastructure, working with education institutions to address the AI skills gap, and developing schemes to pair AI graduates and apprentices with local SMEs.

Intensive programmes offering practical support to help SMEs identify use cases for AI in their businesses and devise AI strategies, as well as ongoing support through peer mentoring, could build AI capabilities, the research states.

“Recommendation 2: Pilot a regional Generative AI ‘adoption challenge’“

And incentives to help smaller companies invest in GenAI tools, software and advice would help drive digital adoption, the report says.

“Building a thriving regional AI sector is essential to making sure everyone can benefit from this technology. That’s why we’re backing businesses with the tools, tech and training they need — and working with local leaders to put AI at the heart of a stronger, fairer economy as part of our Plan for Change,” Ms Clark added.

“Recommendation 3: Explore incentives to drive SME digital adoption“

Action to increase the scale and pace of AI adoption by the UK’s SMEs should now be a strategic priority, says Sue Daley OBE, Director, Technology and Innovation at techUK.

“If the Government wants the UK to be more globally competitive, it is essential that we empower our SMEs to adopt AI technologies more quickly,” she notes. “This requires decisive action on the barriers identified in this report – including access to finance and digital connectivity.

“By tackling these barriers, we can ensure that SMEs across all regions of the UK are more productive, more resilient, and more competitive.”