Written evidence submitted by Microsoft NI, relating to Economic growth in Northern Ireland new and emerging sectors

[EGNI 00025]

Microsoft (Northern Ireland)

Microsoft has had a presence in Northern Ireland for almost 25 years.

Our priorities in the region are to accelerate responsible AI adoption in public and private services; expand digital and AI skills in schools and the workforce through Dream Space @ W5 LIFE and partner initiatives; strengthen data protection, security and compliance aligned to regulatory requirements; and drive local AI innovation and growth across government, academia and industry.

Locally, Microsoft works actively as a strategic supplier in key sectors such as Health, Government and Education, and to leading local businesses including Almac, NIE Networks, Randox and Glen Dimplex. As a result, the company supports a strong ecosystem of indigenous and international technology partners across Northern Ireland.

Microsoft welcomes the Committee’s inquiry as a timely opportunity to consider how the uptake of AI can drive productivity, build upon NI’s existing strengths and ensure that the region’s burgeoning tech sector remains diversified, resilient and prepared for emerging opportunities.

1.0  What are the main sectoral opportunities for economic growth in NI?

How do these align with the eight priority sectors for growth identified in the UK Government’s new industrial strategy?

At a policy level the UK has responded well to the scale and transformative potential of AI as a ‘General Purpose Technology’ with a National AI Strategy (2021) and AI Opportunities Action Plan (2025).

We note that at the launch of the Action Plan the PM stated that he wants to ensure that “the benefits are spread throughout the UK”.

The UK Industrial Strategy has also identified Digital & Technologies as an IS-8 with strong emphasis on AI through the Sovereign AI Unit and AI Growth Zones (AIGZs) and an acknowledgement that AI will also drive other growth sectors such as Life Sciences, Advanced Manufacturing and Defence.

Microsoft agrees with the Industrial Strategy that “the revolutionary potential of AI has barely begun to be realised” and that the whole UK should be an “AI maker rather than an AI taker”.

Education and the public sector offer near-term opportunities where NI can demonstrate UK-leading productivity gains from AI.

In this regard Microsoft has worked with NI’s Education Authority to successfully complete one of the largest Proof of Concepts globally in the education sector and on a UK basis has delivered a large-scale Copilot study with the Government Digital Service (GDS) involving 20,000 government employees.

NI can provide a major contribution to UK-wide objectives. This will be amplified if; UK policy and resources are utilised to prompt the growth of NI’s existing AI ecosystem; NI is ‘plugged into’ UK wide strategy and resources; and UK support reflects local conditions and opportunities, including the all- island dimension whilst complementing activities by the Department of the Economy.

2.0  What are the main barriers to economic growth in Northern Ireland, in particular among new and emerging sectors?

NI has already established a competitive advantage in technology sectors based on its skills base, excellent research and development, advanced infrastructure and industry partnerships with academia.

Microsoft believes NI’s ingrained collaborative approach could support accelerated adoption of AI to further economic growth. Our collective ambition should be for the region’s emerging AI sector to replicate the global success of its cyber security sector.

NI’s economy is more reliant on the public sector than the UK average. The Business Register and Employment Survey 2022 highlighted that the public sector locally accounted for 27% of the total workforce, compared to 18% UK-wide and 14% in the Republic of Ireland.1

The public sector, therefore, has a disproportionate impact on the local economy.

Consequently, the successful uptake of AI in the public section will stimulate private sector activity and demonstrate the region’s commitment to AI to potential investors (accelerating AI adoption by the public sector would also help address productivity issues, service user experience and satisfaction, and growing strains on NI’s public finances).

In that context, barriers within the public sector to the uptake of AI will directly affect the growth of AI across the wider economy.

Microsoft welcomes the commitment of the NI Executive to encourage AI adoption and practical steps such as the recent creation of an Office of AI & Digital. This could be strengthened by

anticipating issues such as: Public Sector Inertia

-          The nature of NI’s devolved arrangements make it difficult to adopt cross-departmental frameworks and policies. There is a danger that the uptake of AI will be impeded by a departmental ‘silo’ approach

-          AI is a cross-cutting issue, but as yet there is no Minister with responsibility for driving AI in NI

-          A specific NI AI Strategy has not yet been published.

1 https://www.nisra.gov.uk/statistics/annual-employee-jobs-surveys/business-register-and-employment- survey

Skills

The shortage of digital and technical skills, particularly those related to AI, data science, machine learning, and software development, is a critical issue for NI.

As organisations increasingly rely on AI-driven solutions to remain competitive, the demand for these specialised skills far outpaces the supply of qualified individuals. This mismatch creates a bottleneck in innovation and implementation, limiting the ability of organisations to fully harness AI technologies for transformative outcomes.

There is also a need to ensure that broad-based AI literacy and skills are developed among teachers, pupils and public sector workers.

Funding

Given its peripheral location NI has traditionally found itself at a disadvantage when accessing capital to fund technology investments. While this situation has improved for larger firms, tech-based SMEs still struggle to secure adequate funds.

3.0   To what extent will economic growth in Northern Ireland be enhanced by new Government initiatives

It is difficult to comment in detail given the lack of clarity around how some of the initiatives will operate in NI. This may be indicative of a wider challenge of translating UK-wide initiatives into a NI context.

There has been some additional welcome funding such as the £30m announced under the Local Innovation Partnership Fund (July 2025) but again, there is still some uncertainty around how and where the money will be distributed.

Bespoke NI AIGZ

There is some excellent content in the UK AI Action Plan but the detail of what a NI AIGZ could look like is still being developed.

Microsoft notes that the UK strategy reflects ambitions to ease the planning process to support AI investment. NI has already embarked on reform of its planning system which is a devolved matter. Consideration should be made of bandwidth within the system to process further AI-related planning reform.

A more optimal approach for a NI AIGZ may be to focus on that aspect of the UK Action Plan which references the need to scale successful pilot studies.

Microsoft believes that NI, given its scale and track record for technology adoption, could serve as a testbed and exemplar for the rest of the UK as a model for AI-enabled public service transformation and reform.

NI’s devolved departments provide a microcosm of many government functions, including a mix of devolved activity and the delivery of UK-wide government services such as welfare. The range of functions managed by a relatively small bureaucracy makes the NI Civil Service an ideal candidate for a large-scale pilot study / testbed.

A bespoke NI AIGZ would build upon the region’s strong data & AI skills and capabilities, reflecting its unique Dual Market access.

It would be further facilitated by NI’s extensive indigenous partner ecosystem which already exists between Government, Industry and Academia. Stakeholders include the NI Executive backed AI Collaboration Centre based at Queen’s University Belfast, the Strategic Investment Board, Ulster University, proactive trade bodies (Software NI / NI Chamber of Commerce) and the Belfast City and Region Growth Deal.

There is a global race for regions to establish themselves as AI hubs and AI specialists. Investing in tangible programmes and Proof of Concepts may be the quickest route to build NI’s reputation and capacity.

4.0  How should the Government and NI Executive work together to deliver economic growth in NI?

Access UK Skillset

As noted, there are challenges in transposing UK-wide strategies and initiatives into a devolved setting.

Across the UK, AI development is being driven by DSIT, but it would be beneficial for the local AI

sector to understand how that aligns with the work of NI’s Executive Office (which is responsible for the Office of AI & Digital), the Department for the Economy and other stakeholders such as the

Strategic Investment Board (SIB).

Transparency would help ensure that the sector is accessing the full range of support being made available to its peers in GB.

Due its scale, the AI skillset of officials in DSIT is arguably among the most advanced in Europe:

-          what measures are in place to ensure that NI based companies and officials can fully utilise this resource?

-          what steps can be taken to build closer relationships with DSIT and NI’s AI ecosystem?

Likewise, a successful AI strategy depends upon a robust data strategy. Microsoft is aware that individual departments in NI have a data strategy in place or in progress, but it would be more

effective to develop these within a NI-wide framework as per the AI Playbook for Government Digital Services in Whitehall.

In the interests of efficiency and speed, there should also be opportunities to ‘reuse’ existing

frameworks such as the AI Playbook for the public sector or Data Protection Impact Assessment (DPIA) templates for the private sector.

Access UK Funding / Investment

Despite its strengths in technology and AI (198 active companies and 1,340 professionals), NI only captures 1% of UK AI investment activity.2 This reflects a wider challenge in accessing UK R&D funds generally (R&D expenditure per capita in NI is amongst the lowest in the UK).3

NI needs support to access public and private investment and as per the recent ‘Capitalising on an AI World’ report we agree that ‘Commercialisation Innovation’ is an area which requires further investigation.4

Microsoft draws the Committee’s attention to the report’s recommendation to “Unlock intellectual property through agile funding mechanisms, including hyperscaler grants up to £500,000, whilst providing integrated startup support that embeds security and compliance from day one”.

CapEx vs OpEx

Microsoft operates datacentres across the UK in London, the South-East and Wales. There is also a significant Microsoft datacentre presence in Ireland, including the "Mega data centre" in Dublin.

Enhancing UK sovereign data centre capacity to support the AI sector can be achieved through a blend of existing physical infrastructure and Global Cloud Hyper-Scalers. Microsoft has recently committed £22 billion to put the UK to the fore of the AI revolution through investments in

hardware, skills and innovation.

NI based entities can also access public cloud offerings from Amazon and Google among others. At present Microsoft has not identified issues within its customer base regarding lack of access. We note that access to Global Hyper-Scalers offers distinct advantages, i.e., more cost effective and efficient access for end users to advances in hardware, software and cloud services without the

penalties and delays associated with traditional hardware.

In this context, there is a discussion for policy makers around what the optimal balance is between investment in NI in ‘hardware’ or Proof of Concepts and other programme deliverables.

Public Awareness

AI is an emerging technology for the public. It would help if there was a public awareness campaign to educate citizens about the benefits and risks of AI and digital transformation. Engaging the public and addressing their concerns is vital for the successful adoption of new technologies. Given the

strain on public finances in NI this may be better delivered at a UK level. Skills

There is a need to encourage educational institutions to foster partnerships with technology companies to help deliver relevant digital skills training. Digital literacy and advanced AI skills should be encouraged from an early age.

2 AI Capability Census – NI AICC (2025)

3 Place 2025: How R&D can drive growth across the UK (June 2025)

4 Centre for Public Policy & Administration (July 2025)

Microsoft's Dream Space education initiative at W5 Life, for example, will offer skills-based learning and training programmes and outreach to over 160,000 pupils, teachers and citizens over the next five years. We would welcome any opportunity to work with the Government / NI Executive to support access to the initiative, i.e., while there is no cost for schools to participate there is a

challenge around transport costs for schools outside of Belfast. City & Growth Deals

Microsoft is working closely with Belfast City Council (City Innovation Office), the Strategic

Investment Board and the AI Collaboration Centre (AICC) on building a proposal for a Regional AI Innovation Programme that could potentially accelerate public sector AI adoption across the region. The aim would be to foster AI innovation and collaboration and realise more efficient service delivery alongside economic and societal impact.

The City & Growth Deal has a track record of delivery and encompasses the main stakeholders from NI’s AI ecosystem. The existing structures provide a readymade delivery mechanism and could be a focal point for further Government / NI Executive AI partnerships.

Fundamentals

Microsoft welcomes the forward-looking approach of UK AI strategy, but it is important to retain a focus on fundamental issues such as cyber security and data estate homogeneity.

Ongoing cyberattacks such as that on Marks & Spencer or more locally involving Queens’ University and Translink present a clear threat to business growth. They are a reminder that no matter what an entity’s current cyber posture is, the reality is that they should probably be doing more.

Likewise, regarding data, AI’s ability to provide the highest quality insights relies upon high quality data, consistency in approach and an integrated approach. Organisations that seek to make strong data driven decisions need good data estate homogeneity.

Both the Westminster Government and NI Executive should continue to encourage and remind business to be vigilant about these fundamental issues whilst pursuing growth.

5.0  What steps are needed to ensure economic growth benefit all parts of NI

Although there is often a natural proclivity for investment to focus on established business and academic centres, there is no physical reason why AI opportunities should be confined to Belfast. The availability of cloud solutions can facilitate the growth of AI firms anywhere in the region. This aligns with the focus on regional balance from the Department of the Economy and Invest NI.

It would be beneficial to propagate AI skills across all parts of NI and other UK regions. A nationwide programme could leverage the footprint of local councils and / or libraries to deliver AI skilling activities.

6.0  What steps should the UK Government, NI Executive and businesses take better to exploit UK- EU dual market access and the all-island economy?

AI is regulated in NI by Westminster, but elements of EU regulation may also apply under Article 13(4) of the Windsor Framework – officials in Northern Ireland are seeking clarification on this matter.5

The application of both UK and EU regulations in NI could make the region a ‘bridge’ between the

two regulatory environments, offer NI a competitive advantage and provide an opportunity to ‘road test’ the two approaches.

NI should be uniquely placed to develop AI tools for regulated environments, but further clarification is required to fully define the regulatory regime in NI and the extent of opportunity and identify potential negatives.

September 2025

5 Hansard NI Assembly 17th February 2025