Trust gap threatens small business AI opportunities, FSB warns

The adoption of AI technology among UK SMEs has grown rapidly in recent years, with most businesses using it for day-to-day tasks like marketing, data analysis, customer service, and automating routine operations.

However, a new report by the Federation of Small Businesses (FSB) has found that a large majority of businesses are raising concerns around data, copyright, and liability, with their hesitance. This could potentially threaten £42bn boost that wider adoption would bring to the UK economy every year, the FSB says. 

As a result, they’re now calling for clearer rules and practical support – including better transparency from AI providers in the form of “model cards” and stronger protections for businesses’ data and intellectual property (IP) – to help smaller firms invest in and adopt AI more safely and confidently.

AI adoption accelerates across UK SMEs

It’s no secret that the use of AI technology has surged tremendously across UK small businesses in recent years, becoming a core tool for everything from everyday operations to long-term strategic decision-making.

According to the FSB’s latest report, 55% of UK small businesses now use the technology – up from 20% in 2023.

Meanwhile, a study by Paragon Bank found that the most common uses of the technology are data analytics and decision making (36%), operations and process automation (33%), customer engagement (32%), marketing (28%), and finance and risk management (27%).

Interestingly, further research from AlixPartners suggests that female founders are embracing the technology more than their male counterparts. 

Specifically, 71% of female leaders primarily see AI as a growth engine, compared to 63% of men, who are more likely to focus on cost reduction. The study also found that women are further ahead on AI deployment, with 26% reporting enterprise-wide rollout of the technology, while saying they are “extremely optimistic” about AI.

Rising concerns over AI risks and governance gaps

As AI adoption accelerates across SMEs in the UK, it’s also increasingly bringing attention to the risks and governance challenges that come with its widespread use.

FSB’s report also shows that concerns over AI have risen sharply over the past two years, with 92% of businesses now reporting worries about AI-related risks – up from 73% in 2023.

AI producing inaccurate responses was cited as the most prominent concern by 54% of firms, followed by security and the abuse of intellectual property (IP) rights at 39%. 

Other notable concerns include a lack of transparency in how models are trained (38%), exposure to legal liability or risk (30%), and uncertainty about using AI legally, ethically, and responsibly (27%).

Tina McKenzie, Policy Chair at FSB, comments: “There is a healthy realism among small businesses when it comes to AI, and it’s encouraging to see so many already finding practical ways to use it to save time, improve productivity and grow.

“Business owners can see the potential, but they are also asking sensible questions about how their data is used, who is responsible when things go wrong, and how they can adopt the technology safely.”

The lack of AI cybersecurity training and AI adoption in micro and small businesses is moving faster than governance, with Keith Hickson, Information Security and Data Protection Consultant and Director of KH InfoSec Ltd, commenting that employees are “using tools they haven’t been trained on; sensitive data is being processed by systems nobody has vetted, and the business owner has no visibility over any of it”.

“When something goes wrong, such as: HR data exposed by an AI-enabled search, misinformation given by a chatbot, an AI-generated report with false data or a new AI tool processing Personally Identifiable Information (PII) beyond the scope of a company’s privacy policy, there is often no clear process to deal with it and no defined accountability,” Hickson told the Banbury Guardian.

FSB calls for clearer AI rules, safeguards and support

With a lot of uncertainty around data use, accountability and IP, the FSB is calling on the UK Government to provide a clearer framework for the next phase of AI growth.

This includes the introduction of standardised AI “model cards” to give businesses better transparency over how AI systems handle their data. Under the proposal, AI providers would be required to clearly disclose where business data is stored, whether it’s used to train AI models, who owns any outputs generated by the system, and where the responsibility lies if something goes wrong.

FSB is also urging policymakers to strengthen protections for small businesses’ data and IP. This includes tougher enforcement against AI companies that use copyrighted material without permission when training their models.

Moreover, it wants the Department for Science, Innovation and Technology (DSIT) to provide guidance, accreditation, and certification schemes that would help firms identify trustworthy AI tools and implement them responsibly.

Finally, the FSB is calling for tax incentives to encourage investment in AI and other technologies that can enhance productivity, which could help small businesses overcome the upfront costs or adopt new tools while helping them improve efficiency and drive growth.

“It’s only natural that people want to know the rules of the road before they take the leap and begin using AI,” McKenzie adds. “Small firms are looking for the confidence and certainty to use it well.

“If we can provide that, the prize is enormous. AI has the potential to help small businesses work smarter, reach new customers, develop new products and compete more effectively, unlocking benefits not just for individual firms but for the wider economy too.”