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Layard had a problem, though. Happiness was not regarded as measurable. "I showed in 1980 that surveys showed happiness wasn't increasing, even though income per head was. I stopped thinking about the issue then, because I couldn't see how social policy could change that depressing fact; I had nothing to contribute because happiness was not yet objectively measurable."

Then, in the late 1990s, something happened that revolutionised Layard's career. Happiness became a new science. Or at least Layard, despite wails of derision from sceptics, says it did. Psychological researchers found a close correlation between reported happiness and activity in the cerebral cortex. As a result, Layard insisted, lots of the scepticism about reported happiness was misplaced."I have been so struck with the sophistication of the science in this area," he says. "It's really impressive." It gave Layard hope that he could both define happiness objectively, measure it accurately and then set about creating more of it.

What is happiness, Layard asked in his 2003 lecture series Happiness: Has Social Science a Clue? His answer was simple: "By happiness I mean feeling good - enjoying life and feeling it is wonderful. And by unhappiness I mean feeling bad and wishing things were different." To his satisfaction, he had cut through a philosophical Gordian knot. Yes, many philosophers didn't think the matter was so simple. And true, Nietzsche did write derisively in Twilight of the Idols: "Mankind does not strive for happiness; only the Englishman does that."

No matter. Layard was reclaiming an Englishman's birthright - the intellectual heritage of utilitarianism handed down by Jeremy Bentham, the 19th-century philosopher who argued that what was really important in ethics was "the greatest happiness of the greatest number". But Bentham was not advocating that each person should acquire more and more happiness in the way Imelda Marcos bought shoes. Just before he died Bentham wrote to the daughter of a friend: "Create all the happiness you are able to create; remove all the misery you are able to remove ... And for every grain of enjoyment you sow in the bosom of another, you shall find a harvest in your own bosom."

Stirring stuff. Only one problem, identified by John Stuart Mill: "Ask yourself whether you are happy and you cease to be so." Everyone from Socrates to the Dalai Lama argued that happiness was a recalcitrant little bugger: you couldn't create it, particularly not in someone else's bosom. And so to set happiness as the overarching goal of social policy might seem to be a terrible error.

Layard discounts Mill, Socrates and everybody else's views on this. He thinks happiness is something one can create by working on one's dispositions towards well-being - or getting someone else to show you how. Layard has no doubt there are some of us who are predisposed, perhaps genetically, to being happy. Many of the rest of us, though, need help.

Last year, Layard visited Bhutan, the Himalayan kingdom where government pursues the goal of gross national happiness (GNH). "Bhutan seems much happier than countries that have a materialist rather than moral ethos. Relationships are rather equal, there's very little status anxiety." He was impressed by the four pillars of Bhutan's GNH: the promotion of equitable and sustainable socioeconomic development; preservation and promotion of cultural values; conservation of the natural environment; and establishment of good governance. "What really struck me is that as a matter of policy, there is very little extreme poverty. Bhutan realises that a redistribution of wealth that favours the poor most is better for producing happiness."

Layard's mission now is to make Britain a bit more like Bhutan. It is a mission that has revivified him intellectually and politically late in a distinguished career. He is 74, and has been married since 1991 to Molly Meacher, a social worker who specialised in mental health and now sits as a crossbencher. In his bestselling 2005 book, Happiness: Lessons from a New Science, he cited his wife as a key influence on his thinking.

In 2005, such was his access to government, that he presented a paper called Mental Health: Britain's Biggest Social Problem? to the No 10 Strategy Unit. There he argued that the scourge of unemployment had been replaced by that of depression. He pointed out that more mentally ill people were drawing incapacity benefits than there were unemployed people on Jobseeker's Allowance. Depression was thus bad for both GDP and GNH. One in six people suffered from depression or chronic anxiety, but only a quarter of sufferers were receiving treatment - mostly drugs. Layard recommended that CBT was as effective as drugs and was preferred by most patients.

In his subsequent The Depression Report he recommended scaling up CBT for people suffering from depression and anxiety through training an additional 10,000 clinical psychologists and psychological therapists. The report seemed to promise a great leap forward in British happiness: a national service of 250 local treatment centres, with 40 new services opening each year till 2013, would offer courses of therapy costing £750. Each course would pay for itself in money saved on incapacity benefits and lost tax receipts. Everybody - including the Treasury - would be happy.

But CBT, and Layard's support of it, has been derided. Typical was the GP, Mike Fitzpatrick who, writing in the British Journal of General Practice, charged that Layard was committing a fallacy similar to that of his LSE predecessor William Beveridge, whose 1942 report predicted that improvements in health resulting from better health services would rapidly result in a reduced demand for health and welfare services and hence in a declining burden on the exchequer. It did not. "The notion that a few weeks of CBT will transform miserable people languishing in idleness and dependency into happy shiny productive workers is embarrassing in its absurdity," added Fitzpatrick.

What does Layard make of such criticisms? "Nobody claims that CBT is going to cure everybody. There will still remain roles for medication, family therapy. And for some personality disorders it won't be relevant either. But for many people currently suffering depression it will." Isn't CBT overrated? "No. CBT takes great trouble to evaluate itself. Other forms of treatment such as psychodynamic ones haven't evaluated their methods."

What are the success rates of these courses? "Something like 50%. Which is not bad. The main problem now is that not enough therapists have been trained."

But it is not only depressives on incapacity benefit who need to be helped to become happy. British children need it too, Layard insists. A 2006 University of York survey found that UK children are the unhappiest of any wealthy European country. At the time, the Archbishop of Canterbury, Rowan Williams, said: "The selling of lifestyles to children creates a culture of material competitiveness and promotes acquisitive individualism at the expense of the principles of community and cooperation." "He's right," says Layard. "We need better role models than Britney - for our children as much as for ourselves."

But how? Layard hands me a book. It's called A Quiet Revolution and it chronicles an initiative at West Kidlington primary school, north of Oxford. There, head teacher Neil Hawkes has sought to instil emotional intelligence in his children by devising a positive value lexicon. This consists of a series of 22 words devised by parents and teachers that have positive values. The lexicon includes trust, respect, love, friendship, humility, hope, simplicity, tolerance and (Gordon Brown's favourite) courage.

Each of these words is dramatised in assemblies, and used throughout the school day - in the playground and in dedicated values lessons. "Deep understanding of the positive concepts gradually permeates the layers of individual consciousness by a kind of osmosis," writes the book's author Frances Farrer, "and ultimately is internalised to the point where the concepts govern action."

Isn't this the nanny state gone mad, I ask Layard. He replies that learning such values is about instilling character, which is the only way children can become strong, secure and autonomous. "So it's not nannying. It's the opposite. Any happy society is one in which people feel in control of their own lives. The government can develop a school system that encourages self-determining agents to flourish."

Why should such inculcation of values be important? Partly, Layard argues, because we live in a mostly secular society. "I had an education that included a religious component and, even though I've become agnostic since then, I recognise that those with religious beliefs tend to be happier." Layard contends that there has been a catastrophic "failure to develop a secular morality. People find it hard to talk about moral issues. A moral vocabulary is what is lacking for many children."