Chancellor John Healey announced the £100 million Sovereign AI R&D Procurement Scheme to support domestic startups.
The initiative provides contracts between £250,000 and £10 million for projects targeting public services.
Selected firms will focus on cutting NHS waiting lists, strengthening cybersecurity, and enhancing defence capabilities.
The program helps smaller British companies compete against large international firms for public sector work.
This strategy follows criticism of the government's £330 million NHS contract with U.S. firm Palantir.
The scheme aims to build homegrown technology and decrease dependence on foreign suppliers for critical infrastructure.