Handing tech start-ups state aid shows Boris Johnson has his wires crossed

Silicon Roundabout in London is at the heart of the tech start-up scene. Throwing state funds at British tech companies makes little sense when they already have access to a stream of venture capital 

We will have control of our own laws and regulations. We will be able to set tariffs according to our own needs. We can haggle out trade deals with countries around the world, and we can control our own borders. We may even be able to catch a few more cod and haddock, although it is a stretch to argue fishing will ever be a major part of a modern, developed economy.

There are plenty of reasons why leaving the European Union without a formal deal may well be better for the British economy over the medium term than anything on offer from Michel Barnier and his team in Brussels. One point should be absolutely clear, however. Subsidising technology is not among them.

We learnt this week that one of the reasons why Boris Johnson, the Prime Minister, isn’t bothered by talks with the EU potentially breaking down is because he has an ambitious plan to create a homegrown tech industry, with British firms capable of taking on the giants of San Francisco and Shanghai. Public money will be thrown at chip makers, web developers and artificial intelligence start-ups. But hold on. That is crazy.

Sure, it would be great if the UK could develop a few global leaders in technology. But subsidies, state aid and national plans are not the way to achieve that – and if that is the reason for walking away without a deal, it is a big mistake.

With the deadline drawing closer and closer, a final collapse of talks with the EU over a trade deal may well be imminent. The two sides remain as far apart as ever, and there is little sign of any willingness to compromise.

Fishing is a sticking point. So is legal oversight. But increasingly, the issue of state aid seems to be the main argument. The EU wants to stop us subsidising industries that can then compete, unfairly in its view, with its own companies. We want to maintain complete freedom. Why? Johnson, under the spell of Dominic Cummings, his tech-crazy chief adviser, appears to believe that with the right kind of industrial strategy, and with “super-forecasters” making the right calls, we can use the power of the state to create world-beating technology champions.

Even if it means a few lorries getting stuck at Calais and some tariffs on Land Rovers, he doesn’t want the EU to have the power to frustrate that.

Really? Britain is about to build a series of world-beating technology giants with the help of the state? In truth, there are three big problems with that plan. First, the state doesn’t create tech giants. In some alternative universe, perhaps Amazon started out as a unit of the United States Postal Service, Apple was an offshoot of a Pentagon project for weaponising phones, and Facebook, Google and Netflix were carefully nurtured by successive American treasury secretaries before finally being transferred into the private sector. But not in this one.

A handful of trendy economists such as Mariana Mazzucato have tried to argue the internet economy was built on the back of government spending, and while there is a grain of truth in that (parts of the web started out in the military), it is wildly exaggerated. In truth, all the giants of the internet were created by driven entrepreneurs who saw a space in the market and had the guts to turn those ideas into vast corporations. The state didn’t have anything to do with it.

Next, there is no shortage of money. It is a myth that all it takes is some capital, a few soft loans and some long-term plans to create world-beating tech companies.

Nor are there lots of great British start-ups that might be the next Zoom if only they could raise enough cash.

There is plenty of venture capital money around to scale up promising web-based businesses. If you need another few hundred million to conquer the world, there are plenty of funds that will back you if your plan is good enough. In fintech, where we are a leader, lots of companies have raised plenty of cash. The same is true in gaming and food delivery. In truth, it often looks as if too much money is thrown at promising unicorns. There is certainly no evidence a shortage of capital is holding them back.

Finally, let’s be real here for a moment. It’s Britain we are talking about. Our record on industrial strategy is not quite as bad as we sometimes believe – in the post-war years the Industrial and Commercial Finance Corporation that turned into 3i had some significant successes – but we have never been very good at it.

The French and Germans do national champions far better than we do. Free-wheeling, buccaneering capitalism is what we specialise in. It would be better to stick to that.

Of course, leaving the EU without a deal may well help the UK’s tech start-ups. We can ditch its ludicrously overbearing privacy rules, which hammer small companies most of all.

And without its cumbersome capital rules, the stock market could get a lot better at funding small tech companies. Europe has turned into a backwater in technology, and the officials in Brussels, with their bizarre determination to be a regulatory super-power (most of us, come to think of it, would prefer to be an economic one) are partly to blame.

Without a lot of that baggage, we may start to do a little better. We can create a light-touch, innovation-friendly regulatory regime that will encourage technologies from the internet, to AI, lab-grown meats, flying cars and vertical farms. But massive, state-backed, national champions to take on the giants of America and China? Forget it. If that is the reason for leaving without a deal, we should calm down and move on – because we could end up wasting billions on a series of white elephants.