The UK government is sabotaging its own ambitions to become a tech superpower by failing to think about the long-term implications of so much public sector data residing in the clouds of US tech firms, according to former UKCloud chairman Jeff Thomas.
At a time when other governments around the world are turning their attention to building in-country, cloud-based data capabilities for privacy, compliance and commercial reasons, the UK public sector is freely handing its data over to the US tech giants.
Ofcom’s October 2023 Cloud services market studystates that US-based Amazon Web Services (AWS) and Microsoft are the two leading providers of cloud infrastructure services in the UK with a combined market share of 70-80%.
And, according to serial tech entrepreneur and investor Thomas, this dominance could do lasting damage to the UK’s long-term economic prospects.
“Data is becoming much more important – strategically and economically. How we govern and manage it, how we harvest it and exploit it responsibly for the population is really important, but when you look at what other governments are doing, they all have a sovereign posture towards data that is in the national interest – and we don’t,” he says.
Meanwhile, more and more of the UK’s data is migrating to the clouds of US-based technology firms, who can use it for their own commercial gain.
“And why are they gathering all this data? One reason is that they need this ‘gravity’ of data, these payloads of data, to train artificial intelligence (AI), large language models, and the like. That is what the UK is missing out on – we do not have that gravity of data because so much of the storage and processing of our data is being outsourced to US hyperscalers and technology firms,” he adds.
“My question to any member of our government on this would be: when was the last time a British company was awarded a contract from an American government agency to look after their sovereign data? It doesn’t happen.”
Falling behind
It’s a situation that puts the UK at risk of falling behind other nations in the AI arms race, while the US cloud giants continue to grow their market share – at the expense of the UK’s domestic providers, Thomas warns.
“What we’re witnessing here is the demise of an industrial sector in the UK, and we’ve seen many sectors disappear over the years because most of them have had their time, and – regrettably – it looks like the same is about to happen to the cloud industry, and this industry only just in its infancy, not its twilight years. The global cloud market is expected to grow at above 15% CAGR to 2030.”
He adds: “The UK had a perfectly good cloud industry but the landscape has changed – and that means we’re getting less investment into the UK tech sector as a whole, which will affect the quality and quantity of the intellectual property we produce, and – in turn – this will affect the amount of funding universities get for research and teaching too.”
This situation will exacerbate the UK’s already well-documented technology skills gap, says Thomas, despite the likes of AWS and the other US cloud giants offering customers access to training programmes and skills initiatives to help plug the knowledge gaps in their organisations around how to use cloud.
We’re going to be using cloud and AI technologies other countries have created – and yet we’re supposed to be a technology superpower? It doesn’t make sense. Jeff Thomas
“If you look at what’s being offered, it’s high-level and proprietary,” he says. “There’s a whole universe of skills out there we need, including people that can design the underlying technologies, build the tools, integrate AI and innovate the architectures – and that’s the bit that is being taken out of this country.”
Thomas warns that the situation he describes undermines the government’s ambitions to become a “science and technology superpower”, because the UK is at risk of losing the talent it needs to build the systems and develop technologies in-country.
“We have some of the best resources in the world in our universities and agencies and yet, to get recognition in that space, you have to go to America or another country with an indigenous cloud industry,” he says.
“We’re going to be using cloud and artificial intelligence technologies other countries have created – and yet we’re supposed to be a technology superpower? It doesn’t make sense. [The government] has little idea or practical knowledge of what it’s saying – it’s all soundbites.”
That being said, there are still technology areas where the UK excels – but it will struggle in the long-term to retain its leading position in those areas without a thriving domestic cloud market to support them, claims Thomas.
“We don’t make silicon anymore, although maybe we should. We don’t have the market size to support the manufacturing of servers, storage or networking devices, but we do have the market size to support a thriving cloud industry and lead the world in many aspects including security and governance,” he says.
“What we do have is the intellectual capacity to design the world’s best cryptographic solutions, the world’s best governance regimes for privacy and compliance – and that’s the bit that is yet to disappear. And that’s the bit that the UK cloud industry was supporting and promoting.”
Thomas likens the UK’s cloud market to a series of “small laboratories” where all of the above was being worked on, but that is not necessarily the case anymore.
“The skills around governance, security and compliance – that’s really where we should be focused going forward. And that requires a vibrant cloud industry,” he says.
The company was founded in the wake of a conversation Thomas had with former Cabinet Minister Lord Francis Maude in 2011, whose remit at the time was focused on the delivery of the coalition government’s cost-saving efficiency and reform agenda.
This work would see Maude push through a series of what he subsequently termed “IT red lines” – during a speech in June 2014 at the Connect Conference in London – that stated no government IT contracts would be allowed to exceed £100m and that cloud hosting contracts would be capped at two years in length.
“Why would you want them to last any longer when the cost of hosting halves every 18 months,” said Maude, at the time.
Thomas was the founder and CEO of datacentre provider Ark Data Centres, which was formed after he met Maude at the opening of a datacentre for a defence contractor in Corsham, Wiltshire, in 2011.
“UKCloud came out of a conversation where Francis asked about the possibility of buying datacentres on a two-year contract, rather than requiring the government to carry on giving out 10-year contracts, and I told him it’s physically impossible to move in and out of a datacentre every two years,” says Thomas.
“I said: ‘Why don’t we move your data in and out every hour or every minute? We’ll put the kit in [the datacentre], design it as a cloud, with the same security and governance as the government requires of its datacentres, and charge by the hour and that’s how UKCloud came about – on the back of a very simple conversation.
“I didn’t know how we were going to do it, but we bought together a coalition of VMware, Cisco and EMC and from that we created Skyscape, which went on to be renamed as UKCloud.”
The emergence of G-Cloud
The following year, in 2012, Maude oversaw the creation of the government’s G-Cloud procurement framework, which started life with the aim of making it easier for small and medium enterprises (SMEs) to win public sector deals – as part of his wider push to loosen the stranglehold that big tech had on government IT.
UKCloud was hailed during a procurement speech given by Maude in 2013 as an example of an SME that was reaping the benefits of G-Cloud providing a “quicker, cheaper, more competitive and more accessible to SMEs” way for the public sector to procure cloud services.
“[The company] started as a startup with six people and now employs over 30 as a direct result of the business they get through G-Cloud,” said Maude, after talking up sizeable cost savings the Home Office had achieved since contracting UKCloud to take over its hosting requirements.
“As far as I’m concerned, Lord Maude walks on water, and it wasn’t because of his interest in data or cloud, but it was his commitment to doing the right thing for the taxpayer by transforming the government IT marketplace from being an oligopoly of eight to 12 large providers, to one featuring 2,000-plus providers, many of which were SMEs,” says Thomas.
“The competition, the innovation and the creativity that came out of all of that during the 2012 to 2014 time period was astounding, and UKCloud thrived – and so did lots of other SMEs too.”
The amount of public sector cloud spending that UKCloud secured through G-Cloud increased quarter-by-quarter until it hit a peak of £8.1m during the first quarter of 2016-2017, with its financial report of that year showing the firm made a profit of £4.4m. The company was also – at that time – the third biggest provider of cloud services to the public sector, according to G-Cloud Digital Marketplace sales figures.
The following year, however, its fortunes started to change, with the firm reporting a downturn in profit, revenue and customer usage, with its 2018 accounts attributing this to increased competition from the likes of AWS and Microsoft, which both opened UK datacentre regions in late 2016.
This was followed a month later by an update to the Cabinet Office’s long-standing cloud-first policy that stated central government departments were mandated to prioritise the use of public cloud over community, hybrid and private cloud offerings. Today, the wider public sector is still “strongly recommended” to follow suit.
Concerns about this policy tweak were raised at the time by the UK’s homegrown cloud providers, which feared public sector IT buyers might consider “public cloud first” to mean they should only be buying services from the US public cloud giants – but the policy wording remained in place.
By the 2018/19 financial year, UKCloud had posted a loss of £2.5m. It then fell deeper into the red to the tune of £17.9m during the 12 months to March 2020.
The company’s 2019/20 accounts were filed with Companies House six months later than expected in September 2021, and revealed the firm was in need of a £30m investment to continue trading.
UKCloud versus the Cabinet Office
Those results prompted the Cabinet Office to advise UKCloud’s public sector users to start seeking out alternative hosting suppliers out of concern about the company’s long-term financial security.
In October 2021, it was further claimed – by sources within the UKCloud partner and user ecosystem – that the Cabinet Office was contacting customers to ascertain how reliant they were on UKCloud’s services.
“They didn’t have any intelligence about how widely used our services were or what strategic value UKCloud was worth to the country, the important job we were doing and the overall importance of the domestic cloud industry,” says Thomas today.
Computer Weekly understands that, at the time the Cabinet Office began briefing UKCloud customers against continuing to use the firm’s services, the company was on the brink of signing off on investment from one of two interested parties valuing the firm at more than £200m.
In the wake of the Cabinet Office’s communications, however, customers and partners followed the department’s instructions to desert UKCloud, putting extra stress on its cash flow and revenue, meaning its need for additional funding became far more urgent.
Computer Weekly also understands the company was unable to attract new business due to sanctions imposed by the UK government’s procurement arm, the Crown Commercial Service (CCS), relating to its financial woes.
“Investors seeing the adverse publicity and reducing revenues started asking the legitimate question: ‘If you are supporting an important part of the UK’s public services and national critical infrastructure, why doesn’t your government support you?’,” says Thomas.
“The Cabinet Office made flawed decisions, and their behaviour, attitude and philosophy was focused on minimising the risk to the government,” says Thomas.
“They didn’t consider the strategic importance of promoting and supporting a UK cloud industry. Their viewpoint was – if there’s even a small chance of UKCloud going bust, everyone should just get off it immediately. There wasn’t any conversation about how they could help strengthen or support the business and it was – in their own words – a surprise to them to find out how many government departments were happily using us.”
Computer Weekly contacted the Cabinet Office for a response to Thomas’s claims that the department did not do enough to help UKCloud, but a spokesperson did not directly answer the question in its response.
However, in October 2022, UKCloud and its parent company Virtual Infrastructure Group were served with winding up orders and the company was placed into liquidation.
“With hindsight the liquidation of UKCloud became inevitable the moment the Cabinet Office instructed partners and customers to move off the platform,” says Thomas.
The benefit of hindsight
It might be easy for some to dismiss Thomas’s comments as the musings of a man harbouring a grudge against a government he feels could have done more to bail out his once-thriving tech firm.
What that view neglects to take into account is the fact the demise of UKCloud was not an isolated incident.
Bristol-based not-for-profit, public sector-focused IT provider Eduserv was another casualty of this trend. The government’s Digital Marketplace data shows the amount of money it made through the G-Cloud framework rose steadily from £14,000 during the second quarter of the 2013-14 financial year to a quarterly peak of £2.5m during the final quarter of the 2016-17 financial year.
By late 2019, the amount of money it was making through G-Cloud had dropped to zero. An attempt to refocus the business on the provision of public cloud consulting, migration and managed services to public sector clients took place at the start of 2018, but – by the end of that year – the company would be acquired and the Eduserv name retired.
Calls for government intervention
In a July 2021 letter recently seen by Computer Weekly, seven UK-based cloud providers wrote to the then-Cabinet Office minister Lord Agnew to outline their concerns about how “difficult and untenable” the domestic cloud market had become, as a result of the public sector becoming “increasingly entrenched” with the US cloud giants.
UKCloud was among the seven signatories on the letter, although Computer Weekly agreed not to name any of the other firms listed as several have since pivoted their business models away from marketing their own clouds to reselling the services of the hyperscalers.
Since that letter was sent, public sector cloud spend has continued to grow and go the way of the US hyperscale giants.
The Home Office contract was the first to be issued under the terms of a recently renewed preferential pricing agreement between CCS and AWS.
Known as the One Value Government Agreement (OGVA) 2.0, it offers public sector buyers committed spend discounts on AWS services and products, and CCS also has similar deals in place with the likes of Microsoft, Oracle and Google.
According to the CCS website, where all of the preferential pricing deals it currently has in play are listed, there are no equivalent deals in place with any UK-based cloud provider.
In a statement to Computer Weekly, a Cabinet Office spokesperson played down how much business the government puts Amazon’s way, while emphasising its commitment to supporting SME suppliers.
“There are more than 5000 suppliers on the G-Cloud 12 framework, with around 90% being SMEs, with approximately 40% of the spend on this framework going to SME suppliers,” the spokesperson says.
“Amazon Web Services is just one of the government’s thousands of cloud service providers and our procurement decisions are always based on getting value for taxpayers and the best quality services.”
Either way, Thomas is convinced the playing field between the domestic cloud players and the US giants is far from level, which is why he is speaking out now.
“I’m doing this in the national interest, and also to correct the narrative. If the UK wants to live up to its claims to be a technology superpower, then it has to demonstrate that it has the capabilities required to fulfil this. And today it does not have a native cloud industry. The narrative is that UKCloud went bust, which is factually correct, but it isn’t the full story,” he says.
The Brexit effect on the UK cloud industry
The same year the US hyperscalers opened their UK datacentre regions, the EU referendum vote took place, which Thomas cites as a significant turning point in the government’s treatment of its homegrown cloud providers.
“Up until 2016, there was actually some interest in the value of sovereign data as a strategic asset, but post-2016 we saw approximately 3,000 people disappear from most government departments to form the Brexit department and the whole agenda changed from being a sovereign entity within the common market to a situation where nobody had a plan,” he says.
A decade ago, when G-Cloud was in its infancy, Lord Maude was working on a five-to-10 year plan to reduce government spending, but that sort of long-term thinking does not seem to exist in government anymore because of the high turnover in political leadership in recent years, according to Thomas.
“Francis Maude had gravitas and when he said something people took it seriously, but how many prime ministers have we had in the last few years? It’s a revolving door and it appears that no-one has to worry about being held to account for any promises they made because the check and balance between ministers and civil servants has all but disappeared,” he says.
“There is a lack of industrial strategy, we’re suffering with poor leadership that prioritises short-term gains over long-term issues. Before Brexit, there was a general election every four to five years – that would give you at least a 10-year horizon for your industrial strategy to play out, but now we have a two-and-a half year view because all the politicians are thinking about is how they can get votes for the next election.”
Persistent concerns about the hyperscalers
Since 2016, there has been a growing disquiet about the dominant hold that AWS, in particular, has on the UK market.
Six months later, Ofcom referred the UK public cloud infrastructure market to the Competition and Markets Authority (CMA) for further investigation, and the outcome of its review is due to drop in April 2025.
Given the length of time the CMA probe is due to run for, Thomas is not holding out much hope that it will change anything. Mainly because – even in the short time the CMA anti-trust probe has been running – AWS has secured a contract worth nearly half a billion pounds with the Home Office and signed a new preferential pricing deal with CCS.
“A week is long time in politics, but a year and a half is an eternity in the world of technology and there’s going to be very little impact when the CMA concludes its investigation. All it will be able to do is look in the rearview mirror and say, ‘Yes, this is where we got it wrong.’ How we put it right now is what I’m interested in,” says Thomas.
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