Only one in five UK small businesses regularly use artificial intelligence (AI) with cost, skills and trust holding them back, new research has revealed.
The report, UK SME Digital and AI Adoption: The state of play in 2026, based on a survey of 1,320 micro and small businesses, found that only 21% use AI regularly, and just 6% have embedded it into daily work across the business.
By contrast, 57% describe themselves as highly or moderately digital, which the report said suggests that the next challenge for the UK is not basic digital awareness, but helping firms turn digital familiarity into meaningful AI adoption or risk lagging further behind other nations. In Denmark, for example, 41% of young businesses have adopted AI.
In other findings from the report by Enterprise Nation’s Tech Hub in partnership with Google, Sage, Dell Technologies and Square, 53% of small firms said stronger AI capabilities would help to improve the quality, consistency and speed of products or services, and 45% that it could make them more resilient to future economic and market changes. Firms with 10-49 employees, in particular, saw the potential to improve staff wellbeing (53%) and retention (37%).
When asked about what is holding them back from adopting AI, 53% cited cost, 46% lack of skills, 38% concerns about privacy and data, and 37% lack of time.
The report also highlighted an “emerging productivity divide”. Among firms that have adopted AI, 65% said their use has increased in the past year, suggesting that early adopters are pulling further ahead.
But it’s the smallest firms that are at the greatest risk of being left behind, the study warned, with only 34% of one-person businesses using AI at all, compared with 68% of firms with 50 to 249 employees
Chancellor Rachel Reeves said:
“We know that many businesses want to use AI but don’t yet have the tools, support or confidence to do so – holding back productivity and growth.
“That’s why this week we announced a major nationwide boost for AI adoption – from a £200 million investment in training, to agreements with trade unions to train workers, support small businesses and open up opportunities for young people.
“New advisory growth labs and industry-led AI adoption plans will also support firms. Our economic plan is the right one, and it puts AI and innovation at the heart of driving growth and national renewal.”
Polly Dhaliwal, COO of Enterprise Nation, said:
“Small businesses are where the UK’s AI ambitions will either become economic growth or remain a policy aspiration. Our research shows firms are already embracing digital tools, but many have yet to make the leap from experimenting with AI to using it regularly and confidently. There is a real risk of a new divide opening up between businesses already benefiting from AI and those that have not yet been able to unlock its potential.
“For small firms, even a few hours saved each week can be transformative, boosting productivity, growth and resilience. If the UK wants to lead on AI, support must reach the millions of small businesses that power local economies and create jobs.
“The opportunity is enormous, but unless more firms are given the confidence and support to adopt AI, the benefits will be concentrated among a relatively small group of businesses rather than shared across the wider economy.”
The research also revealed regional and sectoral differences.
Firms in London and Scotland led on AI adoption, with 30% and 27% of SMEs respectively using AI regularly, compared to only 10% of SMEs in the North East and 6% in Northern Ireland. The North East also has the highest level of digital exclusion, with 22% of SMEs mostly offline, compared with 7% nationally.
By sector, information and communication businesses were far ahead, with 74% using AI at some level, followed by professional services and finance. But adoption was far lower in construction and agriculture, where only around 4% and 1% respectively said they use AI regularly.
Polly added:
“The findings show the small business community with unusual clarity. Small firms are practical, time-poor and focused on tools that solve immediate problems. They want proof, trusted advice and affordable routes in. That means support must be simple, free or low-cost, and delivered through the channels businesses already use.
“Enterprise Nation reaches more than a million small businesses a year through our community, campaigns and partnerships. That gives us a deep understanding of how small firms actually operate, not just how we assume they operate. This report is a roadmap for what needs to happen next if we want digital and AI adoption to reach the real economy.”