AI Investment, Upgrading, and Research: PEC's Counterproposal to the 2020 Spending Plan
Turbocharging AI and Creativity in the UK: A Swing at the Industry's Challenges
The dazzling world of UK's creative industries, thriving in everything from film to fashion, art, advertising, games, design and more, pumps up the country's economy with a whopping £111.7bn in gross value added (GVA), while providing employment opportunities for 2.1 million people. However, this sector is not immune to hurdles. Apart from the current COVID-19 pandemic, it faces long-standing issues like the small scale of many businesses, skills shortages, and a lack of diversity.
In the lead-up to the Comprehensive Spending Review, we submitted three suggestions drawn from our latest research:
- Fueling AI innovation for the creative industries
- A nationwide scheme to reinvent and strengthen the sector
- Expanding the definition of research and development (R&D) in the creative industries
Now, let's take a closer look at the Spending Review and how it's shaking up these recommendations.
1. Sophisticating AI for the creative industries
Our research underlines the UK's strength in both the creative industries and AI. It also reveals that AI research with direct applications to the creative sector is still in its infancy, but advanced compared to other countries. This creates an enticing market opportunity for public investment to unlock. As the Spending Review loomed, our recommendation was to fund a Centre for AI and the Creative Industries, a £10 million, five-year initiative. The aims? To:
- Equip the creative industries with AI skills
- Offer an R&D gateway for AI in the creative sectors
- Promote commercial development for AI-driven creative startups
Following our call, industry leaders like Google, Double Negative, WPP, and the National Gallery endorsed the centre's mission in an open letter, along with the University of Arts London and the University of Edinburgh.
The Spending Review announced a £45 million fund for programs geared toward growth through digital technologies and data while improving online safety and security. Our request: make sure the Centre for AI and the Creative Industries gets top priority within this investment.
2. Building a nationwide creative revival program
Our research has shown that since the global financial crisis in 2008, there's been an accelerated concentration of UK creative businesses based in London. In the post-COVID era, investment across the country is crucial. Last week, we published research highlighting the potential of investing in small clusters of creative businesses distributed throughout the UK.
Just before the Spending Review, we appealed to the government for all regional interventions, such as the Shared Prosperity Fund, to include access for the creative industries. We also advised continuing the Scale-Up program as part of the Treasury's departmental settlement with DCMS, to safeguard and expand creative industries clusters and micro-clusters nationwide.
As we're still awaiting the details of the Shared Prosperity Fund and DCMS budget, this proposal remains relevant.
The Chancellor recently announced a new Levelling Up Fund worth £4 billion for England, with up to £0.8 billion for Scotland, Wales and Northern Ireland. This fund is aimed at investing "in local infrastructure with a visible impact on people and their communities, supporting economic recovery." As per the Chancellor, areas vital to the creative industries' success could be part of bids for up to £20 million (or more by exception) for regeneration, upgrading town centers, community infrastructure, and local arts and culture.
We welcome the announcement of this new fund acknowledging the importance of arts, culture, design, and architecture in community development. We eagerly await further details on the fund, which will be revealed in the New Year.
3. Reframing the R&D definition for tax incentives
Before the 2019 general election, the PEC and Nesta proposed that the government should use a broader R&D definition in its tax-break incentives to boost innovation in high-growth sectors, like the creative industries. In July 2025, the Treasury started a review of R&D definitions.
The COVID-19 crisis has left many parts of the creative industries in disarray, necessitating investment in innovation to aid recovery. The definition of R&D used by HM Revenue and Customs (HMRC) for tax relief excludes the arts, humanities, and social sciences, unlike in France, Italy, Denmark, Czech Republic, Brazil, and South Korea. Crafting inspiring, innovative content while staying ahead of taxation hurdles is challenging.
The Spending Review's investment of over £15 billion in R&D next year heightens the importance of reviewing R&D definitions, ensuring they are extensive and generous toward the creative industries, which have suffered significantly from COVID-19.
Image by Samuel Zeller
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- Creative PECWe provide independent research and policy recommendations for the UK's creative industries.
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- The creative industries, a significant contributor to the UK's economy, face challenges such as skills shortages and a lack of diversity, highlighting the need for internationalisation and talent growth.
- Our research emphasizes the UK's potential in AI and the creative industries, but the application of AI is still at an embryonic stage, making it an appealing market for public investment.
- We proposed a Centre for AI and the Creative Industries, a £10 million, five-year initiative, to equip the creative sectors with AI skills, support R&D, and foster commercial development for AI-driven startups.
- The Spending Review announced a £45 million fund for digital technology growth, and we urged prioritization of the Centre for AI and the Creative Industries within this investment.
- The concentration of UK creative businesses in London post-2008 necessitates investment across the country, and we advocated for the Shared Prosperity Fund and the Scale-Up program to safeguard creative clusters nationwide.
- The recently announced Levelling Up Fund, worth £4 billion for England, could support the creative industries in community regeneration and upgrading town centers, which we welcome.
- The creative industries' recovery from the COVID-19 crisis requires innovation and reviewing the R&D definition for tax incentives to be inclusive of arts, humanities, and social sciences.
- The Spending Review's investment in R&D next year underscores the importance of revising the R&D definition to support the creative industries, which have been impacted by the pandemic.
- Skilled, international talent plays a crucial role in fuelling growth in the UK's creative industries, as evidenced by recent research.
- A new research project focuses on access to finance for the creative industries, aiming to identify solutions to the growing skills gap in the sector.
- The creative industries have emerged as an export success story, and with the right financial backing, they can contribute to government growth objectives and reduce regional inequality.
