This review of the key elements for UK innovation includes its contribution to economic growth and ways in which firms build competitive advantage.

Key findings:

• Despite a 2.5 per cent fall in business R&D in 2009, businesses continued to spend £15.5bn.This represents 1.1 per cent of UK GDP.
• Investment in intangibles was £140bn in 2008, 14 per cent of private sector output. These investments accounted for nearly a quarter of average annual labour productivity growth between 2000 and 2008.
• Overall innovation accounted for 63 per cent of labour productivity growth over the same period.
• Government investment in R&D was valued at £9.4bn in 2008/9.

Nesta was asked by David Willetts, Minister of State for Universities and Science, to work with BIS in the preparation of the Annual Innovation Report 2010.

Innovation is a vital driver of economic growth and is therefore a high priority area for government policy. But to provide the best possible input to policy we need a strong basis on which to gauge performance. Much work has been and is being undertaken to improve our understanding and measurement of innovation in the economy within government, academia and business.

The Annual Innovation Report provides a small snapshot of our understanding. The 2010 Report is the third in the series and expands on the range of data included in previous editions.

A key component of the report is Nesta’s Innovation Index project. The Index measures the investment in intangible assets and demonstrates the importance of these investments in driving economic growth.

The Annual Innovation Report 2010 is supported by two Index reports:

• Driving Economic Growth: Innovation, knowledge spending and productivity growth in the UK prepared by Imperial College and ONS
• Measuring Wider Framework Conditions for successful innovation: A system’s review of UK and international innovation data prepared by Manchester University.

Authors:
BIS, Nesta