The government is not doing enough to create the right climate for innovation investment, say more than two thirds of GB business leaders surveyed, who think that too little is being done to give businesses the confidence to invest in new products, services or ways of working.

The YouGov findings are released as Nesta, the UK’s innovation foundation, publishes its economic plan for innovation-led growth, Plan I.

Although 39 per cent of business leaders surveyed believe that business should lead UK innovation, the findings suggest that a lack of innovation leadership is holding back private sector growth. In the last year, a third of businesses invested nothing or less than one per cent of revenue in new products, services or processes; a contributing factor to the £24bn* decline in annual innovation investment since 2008.

Nesta's Plan I sets out 12 recommendations to kick-start sustainable innovation-led growth,  and move beyond the typical economic policy that has dominated in the UK for the last decade. By focusing on structural reform, Plan I bypasses the stale debate between Plan A and Plan B - models that divide GB business leaders; just over a fifth (21%) are in support of austerity a similar number (22%) in support of stimulus.

Geoff Mulgan, chief executive of Nesta, explains, "Economic theory has struggled to understand the world of software and new materials, computing and design, and the continuing debate between Plan A and Plan B has so far said almost nothing about the critical sources of future growth. But there is now broad consensus that innovation is the most important driver of long-term productivity and prosperity - including at least two thirds of UK productivity gains in recent years - and that innovative businesses create more jobs and grow faster.

"The UK has always led the world in innovative businesses, from world class firms like ARM and Rolls Royce to dynamic creative industries.  But Nesta's research shows that we face major problems of finance, structures and culture.

"Plan I argues for a shift in priorities from the present to the future.   It sets out a comprehensive strategy - linking everything from schools to start-ups, big science to infrastructure.  Other countries, such as Israel and Finland understand the importance of innovation and are  investing growing shares of GDP in innovation. The UK can't afford to be left behind."

Plan I outlines how all sectors in the UK - public, private, third sector and higher education - have a critical role to play in restoring economic growth.

With no additional public spending requirements, Plan I makes recommendations that will quadruple the government's discretionary investment in innovation, give the UK the most cutting-edge technological infrastructure in Europe and tear down barriers that discourage businesses from investing.

Broadband is recognised as the most important infrastructure investment for the UK's long term growth by 54 per cent of businesses, followed by energy grids and supplies (48 per cent), rail (48 per cent), roads (43 per cent), housing (41 per cent) and airports (35 per cent).

Plan I's recommendations include:

• Financial architecture:  A £200m fund for early-stage ventures; freedom to raise money for the Green Investment Bank, and a new business banks to lend to growth sectors including advanced manufacture and life sciences.
• Rebalance government spending towards innovation: Invest the proceeds of the forthcoming 4G spectrum auction - estimated at £4bn - in science, technology and innovation.
• Government innovation procurement: Establish innovation spending to channel £1bn of government procurement through innovative businesses.
• Infrastructure investment: Relax planning restrictions around innovation clusters.
• Collective intelligence: Higher education funds for radical inventions around knowledge creation - putting design thinking at the heart of the new Catapult centres.
• Incentives for innovation: A £25m 'challenge prize' fund to inspire the nation to tackle big technological challenges.
• Measurement, data and standards: Reshape the tax credit system to recognisehidden innovation and R&D.
• Boosting innovation across the UK: Supporting innovation clusters where they are already thriving.
• Innovation in the labour market: Link procurement to local jobs, training and apprenticeships and encourage innovation around micro-jobs and micro-franchises. Support innovative projects such as Studio Schools/establish norm of one apprenticeship per £1m turnover.
• Public and social innovation: Demonstrate the most effective models and approaches to tackle the severest social challenges, with cross-government funding commitment for public service incubators to share the most effective models.
• Education: Create the next generation of digital makers, giving all teenagers the chance to make, code, design and program.
• Remove barriers to entrepreneurship: Change the immigration cap to welcome skilled foreign graduates and entrepreneurs, and recast regulation to encourage new market entry.

Encouragingly, despite a lost decade of innovation as demonstrated in Nesta's authoritative Innovation Index released in July, over half of businesses see investment in non-physical assets, such as software, skills and research and development, as priority for their business' investment over fixed assets, such as buildings, plant and machinery, in the next ten years.

Only seven per cent of businesses questioned are working with universities to support their own research and development, whilst 43 per cent say that they have not worked with a university and have no plans to.

A full copy of Plan I is available for download here: Plan I.

-Ends-

Notes to editors  

For further information or to arrange an interview with Geoff Mulgan, chief executive of Nesta, please contact Sarah Reardon on 020 7438 2606 / 07880 613 500 or email [email protected] 

• Nesta's definition of innovation: Innovation is the process by which new ideas turn into practical value in the world: new products, services, or ways of doing things
• *Innovation Index: released in July 2012, the most authoritative source of how businesses in the UK invest in innovation. Available from: http://www.nesta.org.uk/publications/assets/features/innovation_index_2012
• All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 783, all board level manager/ director level and above. Fieldwork was undertaken between 31st August - 6th September 2012.  The survey was carried out online.

About Nesta: 

Nesta is the UK's innovation foundation. We help people and organisations bring great ideas to life. We do this by providing investments and grants and mobilising research, networks and skills. We are an independent charity and our work is enabled by an endowment from the National Lottery.

Nesta Operating Company is a registered charity in England and Wales with a company number 7706036 and charity number 1144091. Registered as a charity in Scotland number SC042833. Registered office: 1 Plough Place, London, EC4A 1DE