William Hague’s article in The Times on the 21/10/25. Impressive insight and rightly identifies the need to invest in and focus up on innovation for the UK to succeed.
In all the fuss about the Nobel peace prize and whether it would be awarded to President Trump, you might not have noticed last week’s announcement of the Nobel prize for economics. It is an important prize, since it highlights vital discoveries about how economies work. Without such understanding, living standards go backwards and governments fall.
Just as Labour MPs know that their entire fate will probably rest on whether Rachel Reeves can get her budget right next month, so almost everything in politics rests on good economics.
This year the prize has gone to three economists who have demonstrated how sustained economic growth is driven by innovation. One of them, Joel Mokyr, has shown why the British economy stagnated for 400 years up to the 18th century, despite many inventions taking place, and then took off dramatically in the Industrial Revolution after modern science emerged and new technologies were invented at the same time. Sustained growth, he has shown, depends on science and technology evolving together, a high level of mechanical competence to make the most of them, and a society open to disruptive change.
The other two winners, Philippe Aghion and Peter Howitt, also showed how innovation is the key driver of growth, through a process of “creative destruction” of established companies by new products and processes. While the work of all three economists is about how innovation unfolds, it is clear from their conclusions that such innovation is the main and overwhelmingly important determinant of whether we live in a growing or a stagnating economy.
Isn’t this obvious, you might think? Isn’t it clear that US growth this century has resulted from a mass of innovation in Silicon Valley, not from the average shop or factory in America? Don’t all governments say they favour innovation? Well yes, it should be obvious, and yes, they do all say that. But what they then do is entirely different. In Britain and the rest of Europe, while governments have many initiatives that support innovation, much of their activity fails to give it sufficient priority and most of their policies actively stifle it. That is why they are stuck in stagnation and running out of money.
Ministers continue to believe that building infrastructure and spending more money creates growth. But if innovation is the key driver of growth, they are wrong. Take HS2 as an example. It will cost, ultimately, over £100 billion. If it had been a well-managed project that actually reached most of the intended places, we could expect that people could travel more quickly and move more easily for work. That is assumed to be growth because, short-term, it is more activity. But in reality, all we will have done is spent scarce money and allowed a lot of running around within a stagnating economy.
£40m innovation fund is equal to three hours’ debt interest payments
Now imagine that we truly understood that innovation drives growth. Think what would have happened if we had taken that £100 billion and spent it on much more funding for Aria (the advanced research agency), paying higher salaries to scientific researchers, slashing capital gains tax for young entrepreneurs, training far more people with technical skills, giving visas free of charge to the cleverest people working in AI, and supporting firms developing new types of batteries or rare earths processing who cannot compete against Chinese subsidies.
Would we have a better chance of a growing economy if we had thrown our resources at such things? Clearly, successive governments have not thought so. But according to the logic of the Nobel prize winners, yes, we would. I think they are right.
Ministers like to “build, build, build”, because new towns and infrastructure are things you can touch, point at and for which they can claim credit. The trouble with putting effort into new ideas is that they are uncertain, you can’t see them, they are risky and the National Audit Office finds it hard to measure them. Yet the only hope of growth is to encourage people to “think, think, think”.
I never want to be unfair to the government. It has rightly embarked on several initiatives to encourage innovation: a new global talent fund to attract researchers, a “concierge” service to help finance firms locate in Britain, reform of pension schemes to promote investment in UK firms, longer-term ten-year budgets for research funding, a new health data research service and more such items.
The Treasury is now frantically looking for new ideas, such as cheaper patents benefiting start-up firms, to persuade the Office for Budget Responsibility to soften the coming downgrade of future growth.
But if it is true that innovation is the critical factor in future prosperity, then it needs to be a far higher priority, not to be inhibited by the rest of government policy and not thought of only at the last minute before a budget.
A good example of government support for innovation is the £40 million announced in the last budget to support university spin-outs — a prime source of future growth. Yet the initial tranche of this funding was heavily oversubscribed, which suggests many ideas need more support. And £40 million is what we spend on debt interest every three hours. It is the total spent on health and disability benefits every six hours — a rapidly increasing sum that ministers have failed to reform.
This is a hopeless sense of priorities, yet it is only an innovative economy that will be able to afford the vast benefit and pension bills of future decades.
Ministers often support innovation with one hand and frustrate it with another. Monday’s pages of The Times revealed how the vital work to develop SMRs (small modular nuclear reactors) had been delayed and made more expensive in an excessively bureaucratic process.
Firms bidding to supply the new technology have been asked to demonstrate the “social value” of their supply chains, including employment of refugees. Such rules have contributed to a two-year process while other countries forge ahead. Real social value would come from having a growing economy, with cheaper energy, in which everyone has a better chance of finding work.
While the Nobel prize is the clearest evidence yet that innovation decides our future, ministers, government departments and regulators are light years away from behaving as if that is true. We are a country of extraordinary talent with endless ideas. Yet many of those ideas are flattened by the grinding, dull uniformity of regulation; or cannot find the capital as wealthy investors are pushed abroad and public money for growth goes overwhelmingly into infrastructure instead.
Listen to many economists and political leaders and you might think growth comes from government spending, or entirely depends on interest rates, small tax changes, stability or consumer confidence.
These things do matter, day to day.
But to grow sustainably we need the freedom to have new ideas and implement them. Literally everything will depend on it.
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