Innovation drives two-thirds of productivity

Innovation drives two-thirds of the UK's private sector productivity, according to a new report.

Using its new Innovation Index, the National Endowment for Science Technology and the Arts (NESTA) uncovered how much innovation really means to the UK economy.

It found that UK businesses spent 133 billion on innovation - such as design, software creation, and R&D - in 2007. That works out to 14 per cent of private sector output, NESTA said.

That spending boosted productivity by 1.8 percentage points, NESTA claimed - some two-thirds of the growth seen in the economy.

The report said innovative software firms grew at an average rate of 13 per cent each year, while their lazy counterparts saw essentially no growth.

NESTA said the UK's focus on innovation helped keep its productivity growing in the past few years. It said the UK had seen growth of two per cent, compared to 1.3 per cent in France of 1.1 per cent in Germany because of this.

Still, more needs to be done to get the UK to the upper echelons of innovative countries, like Japan and the US. The NESTA report said the UK needs better access to financing, more training, and more demand for innovation, which it said could be spurred by government procurement.

Jonathan Kestenbaum, chief executive of NESTA said: "For people who care about the prospects for our economy, this Index will be as important as the Consumer Price Index. The Innovation Index measures arguably the most important driver of growth."