Smaller UK firms risk falling behind as AI skills gap widens

Research from the Institute of Coding highlights a significant divide in AI readiness between larger SMEs and the smallest businesses in the UK.

The survey of 500 business leaders across a range of sectors, including manufacturing and human health, indicates that while larger small and medium-sized enterprises (SMEs) are increasingly adopting AI, micro businesses and sole traders are struggling to keep pace and risk falling behind in an AI-driven economy.

AI skills gap

According to the data, AI confidence strongly correlates with the size of the business. While 82% of medium-sized businesses and 73% of small businesses believe their organisations possess the necessary skills to take advantage of AI opportunities, the overall average across all SME categories is only 37%.

With a reported 5.45 million small businesses (with 0–49 employees) and over 3.1 million sole proprietorships, these smaller organisations represent a significant segment of the UK economy. The findings suggest that if these groups are not sufficiently equipped for AI adoption, a two-tier economy could emerge where only larger SMEs benefit from AI advancements.

The research also points out that awareness of specific AI tools does not directly translate into adoption or effective management. Even among SMEs aware of products like ChatGPT or Otter.ai, 33% cited internal barriers to implementation. Furthermore, only 27% of SME leaders expressed confidence in overseeing AI tools effectively, suggesting that challenges exist beyond simple awareness, encompassing governance, strategy, and practical implementation.

Investment in AI-related training remains low across the SME landscape, with only 12% of businesses having invested in such programmes to upskill staff. The research found that while some small companies focusing on AI products and services are making progress—63% of these are micro businesses—those in non-AI sectors and without prior knowledge are struggling to close the gap.

Need for clearer guidance

Calls for a cohesive national approach are evident in the survey results. Some 59% of SMEs stated they want a national AI skills strategy that is tailored for all career levels and company sizes, rather than being limited to large enterprises or educational settings. Additionally, 75% of SMEs say businesses require clearer guidance on the specific AI skills that will be needed across workforces in the next three to five years. There is a prevailing concern about maintaining competitiveness; 41% believe that businesses which fail to adopt AI will be outpaced by rivals.

"We're pleased to see a thriving number of micro businesses and sole traders who have a core focus on AI, but the research reveals a concerning AI readiness divide that threatens to create a two-tier business economy. While larger SMEs are demonstrating strong confidence in their AI capabilities, the overall average of just 37% shows that micro businesses and sole traders in non-tech focused sectors are being left behind. "This isn't just about individual business success – it's about ensuring the entire UK economy can participate in the AI transformation. The smallest businesses often form the backbone of local economies and employment, so we cannot afford to see them excluded from AI adoption. "The UK has momentum, vision, and investment behind AI. But unless micro businesses and sole traders are explicitly included in the national delivery plan, the benefits of AI will concentrate, not democratise. The Institute of Coding's work is not just aligned with the UK strategy, it is essential to making it real for every corner of the economy."

AI training initiatives

The Institute of Coding, under the leadership of the University of Bath, is offering free, practical short courses aiming to raise AI awareness and skill levels in businesses of all sizes. These programmes are accessible to founders, freelancers, and employees at all levels, and are structured to address the challenges highlighted in the research. Participants are not required to pay for these courses and are intended to support practical implementation of AI skills in a broad range of business contexts.

The government's AI Opportunities Action Plan and TechFirst programme have set a target of training 7.5 million workers in AI skills by 2030. The Institute of Coding's initiatives are designed to supplement this national strategy by targeting all levels of the workforce, particularly the micro businesses and sole traders at risk of falling behind.

The polling was conducted by Yonder among 500 UK businesses operating across a number of sectors.