Britain can be a NEW Silicon Valley: Former Chancellor JEREMY HUNT made a fortune as a digital entrepreneur. Now, in the final extract from his thought-provoking new book, he says we must cut State spending to unleash the animal spirits of technology
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I had been Chancellor of the Exchequer for barely a month when it fell to me to deliver the 2022 Autumn Statement, in which I had to tackle a nightmare £72billion black hole.
The short-term necessity was to plug that gap; the longer-term goal was to create stability following the economic upheaval of Liz Truss’s brief period as prime minister and set the scene for growth.
I knew I needed to give people hope. My own background as an entrepreneur had convinced me that technology was a major opportunity for the UK.
So, after some hesitation, I included a passage in the speech saying the UK should aim to become the world’s next Silicon Valley. It was a bold and unexpected thing to say. But was it credible? I half expected to be ridiculed.
Rather to my surprise, I wasn’t. The UK’s technology sector is one of our great success stories, now and in the future. There is an opportunity here we must grasp and not let go of, if we want to put the ‘great’ back into Great Britain.
The UK has long been a pioneer of computing innovation, going back to the 1840s when Ada Lovelace, daughter of the poet Lord Byron, published the first
algorithm for Charles Babbage’s ‘theoretical computing machine’, making her the world’s first computer programmer.
But the real breakthrough came more than a century later, during the Second World War, when Alan Turing and his colleagues at Bletchley Park created the world’s first programmable electronic computer and cracked the enigma codes used by the Nazis to encrypt messages.
Turing was shamefully prosecuted for homosexuality, leading to his tragic suicide at the age of 41. We will never know what else he might have achieved.
But, after the war, other programmers took his work to the next stage. In 1951, the world’s first ‘business computer’ was developed for the catering company, J. Lyons. A decade later, one of the world’s first supercomputers was built in the UK.
There were years and years of incremental advances. Then came the big one when Tim Berners-Lee, a Brit, suggested to colleagues at CERN, the particle physics laboratory in Geneva, that they could share information about their work through something he called ‘Mesh’. He started writing code for what he then renamed the World Wide Web.
Nor has British innovation stopped there. The invention of e-commerce is often attributed to the British entrepreneur Michael Aldrich, whose system of connecting a shopper’s television with a transaction-processing computer via their telephone was a forerunner of online shopping and revolutionised the way many of us live our lives. Brits spend more money shopping online than consumers in any other major economy apart from the US.
Too often in the past, our national story has been one of brilliant inventions which other countries go on to make money from. But, in the case of technology, something different is happening. The UK tech sector is a huge and rather underrated success story.
In 2021, we became the only European country to have 100 ‘unicorns’ – tech companies worth more than $1billion. In 2022, this ecosystem exceeded the $1trillion mark, only the third in the world to do so after the US and China.
British tech start-ups hoover up more venture capital than France and Germany combined, and when it comes to AI, only the US and China have more start-ups.
British universities have played a key role in the revolution. Three of the world’s top 20 universities are in the UK, more than anywhere else except the US. They continue to file many more patents than similar-sized countries.
They produce more graduates in AI-relevant courses than anywhere else in Europe. The UK is ranked the fourth most innovative economy in the world.
And now the fact that, as the US draws in its horns, we are going to have to spend a lot more on defence could also power up our Silicon Valley ambitions.
After all, that was the catalyst that got the original Silicon Valley off the ground, when the successful launch of the Soviet Union’s Sputnik satellite in 1957 triggered panic in the West.
To help compete in the arms and space race with Moscow, the engineering faculty at Stanford University was asked to assist. It set up Stanford Industrial Park, leasing chunks of university land to high-tech start-ups. Financed by a combination of private capital and lucrative government contracts, Silicon Valley was born.
Defence giant Lockheed Martin set up its missile and space division nearby. Nasa opened a big research centre. The Pentagon also played a key role, remaining to this day one of the world’s largest funders of computer science research. Can the UK hope to do something similar? It’s a bold ambition, but I think we can.
I got to know the British tech sector not as a politician but as an entrepreneur, when I co-founded a publishing company called Hotcourses with my best friend Mike. As ambitious 20-somethings, we started producing chunky directories of courses and colleges which weighed a ton.
It was the early 1990s, and we became fascinated by the new search engines being launched by Yahoo, AltaVista and Google. We wondered if our directories would work better online. So we decided to take the plunge into a totally new world.
The first step was to raise some money, but we were turned down by every venture capitalist in London. Rather ridiculously in retrospect, they only wanted to invest in blue-sky, rather than existing, businesses, which they thought were much too dull. In the end we raised a small amount from some angel investors. It was just about enough.
We set about building from scratch what became the world’s biggest database of courses, colleges and universities. As the world went online, we began to eclipse our larger competitors, who remained stuck off-line, printing magazines.
We, on the other hand, stopped printing altogether. When we finally sold the company, it employed 70 people in London and 200 in India. It continues to thrive.
By coincidence, my first job in the Cabinet, Culture Secretary, made me responsible for the technology sector.
At the time, broadband speeds were painfully slow, particularly in the countryside where it was often non-existent. I decided to prioritise the rollout of faster broadband. I had visited Singapore and South Korea and been wowed by the infrastructure they were putting in place.
So a month after coming to office I announced that the new government would build the best broadband network in Europe. My partner in crime was Rohan Silva, a smart visionary who was then working as an adviser in No 10 (and is now himself an entrepreneur). Soon, our tech ambitions became a central part of the government’s economic strategy.
It largely delivered some of the cheapest and fastest broadband in Europe. We still have more work to do on fibre, but on that too we are catching up fast.
Good broadband alone, however, won’t turn us into Silicon Valley, so Rohan and I focused on building up a tech cluster in East London. This began in an area initially known as Silicon Roundabout, based in old industrial buildings in Shoreditch.
After the Olympics, it became ‘Tech City’. In time, the benefits spread outside London and ‘Tech City’ became ‘Tech Nation’.
We secured commitments from companies such as Google, Facebook, Intel and McKinsey to invest in the UK. Our aim was to do for technology what the Big Bang’ had done in transforming the City of London into one of the world’s dominant hubs for financial services.
If we did the same for technology, we could banish our long-standing productivity issues, transform our national finances and greatly enhance our global prestige.
But it is the work of more than one Parliament. Luckily, the vision has strong cross-party support, including, to her credit, from the present Chancellor, Rachel Reeves. The Government’s recent AI review envisages public sector computing capacity expanding twenty-fold by 2030.
But if we really want to be the world’s next Silicon Valley, there is a big weakness we need to tackle head on: the UK’s failure to produce technology companies of a globally significant size.
For many years Britain has failed to turn innovative start-ups into giants. Cambridge boasts one of the world’s top semiconductor design companies, Arm – but it is listed on the New York Stock Exchange. The London-based AI research laboratory DeepMind is owned by Google.
Mike Lynch, described before his tragic death – when his superyacht, Bayesian, sank off the coast of Sicily last August – as Britain’s Bill Gates, sold his company Autonomy to Hewlett Packard.
In the different sub-sectors of the technology industry, the UK has disappointingly low numbers of top 100 companies. The reason has often been a lack of capital. Even fast-growing companies can struggle to get funding to scale up to the next level.
Wall Street has traditionally been a much easier place than the City to raise funding for high-growth companies with low or no profits – as is often the case with technology start-ups.
That hesitancy is in part due to the sleepy conservatism of UK pension funds. They only invest around 4 per cent of their assets in the London stock market, despite sitting on the world’s second largest pension pool. An even tinier proportion goes into the fastest-growing UK technology companies that are still private.
Pension funds in the US, Canada or Australia have no such hesitation, which is why they get better returns for their investors. The result is that promising British start-ups are more likely to get funding from Canadian pension funds than British ones.
In 2023, I unveiled a major programme to change this by incentivising smaller pension funds to pool their capital in order to develop more professional investment strategies. This should unlock huge chunks of the £2.5trillion of assets held by UK pension funds, meaning not just better returns for pension fund holders but a new generation of trillion-dollar British tech giants.
Such reforms cannot come a moment too soon, because many others have their eye on the technology prize. France has great strengths in AI, attracting more investment than the UK.
Germany, South Korea and Japan have formidable strengths in robotics. Israel is a global leader in cyber security. And all are dwarfed by the US, which has eight of the world’s top-ten tech companies.
China is also on the march. It is harder to measure Chinese progress, because its tech is increasingly isolated behind a ‘silicon curtain’. But if a good indicator for the quality of a country’s innovation is the number of patents it files, then fully three quarters of all AI patents globally are now filed by China.
Tsinghua University publishes more AI research than any other university in the world. President Xi Jinping’s ambition for China to be the global leader in AI by 2030 is taking shape.
But amidst such fierce competition, the UK has positives that many of its competitors can only dream of. It has an extremely strong talent pipeline, with more AI graduates than anywhere else in Europe.
Another key strength is that our science base now extends from AI to quantum, from defence to life sciences, and from clean energy to the creative industries. Such sectors often cross-fertilise each other.
That growing ecosystem will give the UK a pivotal role in one of the biggest challenges facing humanity – how to ensure AI remains a force for good and is not the start of a dystopian future in which malign actors use vast computing power for evil purposes.
Such issues were a big enough concern to persuade Rishi Sunak to host the world’s first governmental summit on AI safety in 2023. The discussions highlighted the challenges we face and the role the UK can play in preventing AI Armageddon.
This may well mean guardrails around the safe use of AI. The key is to make sure new regulations do not end up stifling innovation in the process, as is the case with current EU rules.
Because we now have regulatory autonomy outside the EU, the UK has the ability to change and adapt the rules nimbly in a way that strikes a more pragmatic balance between innovation and safety – and secures the future of a strategic growth sector.
For Britain to become the next Silicon Valley will require focus and nimbleness from successive governments as we compete with others. But the potential for technology to be a major source of wealth is obvious.
However, there is a chicken-and-egg question to resolve first: some of the things that will make it possible – investment in universities, life science research and defence – require funding. Where do you find those resources before you have got to the destination?
In the short term, resources can only come from two places: welfare reform and public sector efficiency. The productivity of our public sector is growing by a measly long-term average of 0.9 per cent a year, around half the growth rate in the private sector. In the NHS, it is nearly 20 per cent lower than pre-pandemic levels.
If that productivity increased to around 2 per cent, something magical would happen. Our debt would stop rising as a proportion of GDP; and we would be able to increase funding in key areas like the NHS and defence without forever upping taxes. If we increased it by even more, we could even start to consider reducing taxes.
Anyone who has run a business would say that 2 per cent productivity growth a year is more than achievable. Anyone who has run a government knows that in the public sector it is very hard.
And it didn’t help that one of the first acts – and a greatly mistaken one – of the current government was to spend £9.4billion on public sector pay demands without asking for a single productivity improvement in return.
But getting 2 per cent productivity growth is far from impossible. When I was Health Secretary, I secured agreement from the NHS to deliver just that for the next five years,
in return for a big budget investment to overhaul their creaking computer system. It should be entirely possible to do so for other public services.
The second area where short-term funding could be released is by cutting back on welfare. Currently, 2.7million adults of working age are on sickness or disability benefits. Within five years the cost of that will increase to £75billion a year.
It is bad for the economy – and often terrible for the individuals involved, who end up in a benefits silo that can make mental health conditions even worse. Just returning the number of claimants to pre-pandemic levels would reduce that bill by £40billion a year. That is not easy to deliver at a stroke, but it is a reasonable ambition for a Parliament.
Public sector productivity improvements and welfare reform are challenging policy areas. But in the short term, they are the only show in town.
Without them we face the prospect of ever higher taxes and ever diminishing growth. With them, we unlock long-term growth generated by increased defence spending and proper investment in our universities. Both are vital foundations for giving Britain a stronger voice in the world.
A successful economy has a powerful, intangible effect in bolstering a nation’s credibility and influence. In this technology century, a strong presence in technology would bolster the UK’s soft power and provide the funding for its hard power.
Britain has a long way to go before it matches Californian innovation and risk-taking. But it is far from impossible. It means making sure universities solve their current financial issues. It means keeping the UK attractive for entrepreneurs and international investors.
It means making sure innovation hubs like Oxford, Cambridge and Manchester are supported with the housing and transport connections they need. And it means providing more support to areas with good universities where land and housing are cheaper.
Like any entrepreneur, we can succeed if we are hungry enough. And we have every reason to try.
If Britain’s tech sector was as big as California’s, we would create thousands of exciting job opportunities for young graduates as well as generating around £60billion more in tax revenues every year. We would have anchored our economy in the parts of the global economy that are growing fastest.
The result, for UK citizens, would be a series of virtuous circles – vaccine research preventing a global pandemic and creating life sciences jobs; clean energy fulfilling our climate obligations as well as providing lower energy prices. We would also become a much more powerful international voice.
Whether it is contributing to global security with the most technologically sophisticated Armed Forces, defending democracy by stopping election interference, preventing climate change with advanced clean energy solutions or stopping innovations in AI from falling into the wrong hands, we would be a bigger and bolder presence on the world stage. Great Britain once again.
- Adapted from Can We Be Great Again? by Jeremy Hunt (Swift Press, £20), to be published June 5.
- © Jeremy Hunt 2025. To order a copy for £22.50 (offer valid to 07/06/25; UK P&P free on offers over £25) go to mailshop.co.uk/books or call 020 3176 2937.
