Two-thirds of private sector growth between 2000 and 2007 was driven by innovation, claims NESTA’s Innovation Index.

The index measures innovation through R&D investments, product design, training in new skills, developing new customer offerings, and copyright.

The report found that software firms investing in these areas experienced an average annual growth of 13 per cent, compared with just over zero per cent for non-innovative firms in the same sector.

Lord Currie, chair of the index committee, says: ‘This report measures the direct contribution of innovation to productivity and economic growth, through a much wider set of channels than hitherto captured. This is critical in refocusing innovation policy on what really matters for enhancing the UK’s prosperity.’

According to NESTA, UK businesses invested £133 billion in innovation in 2007, resulting in 14 per cent of private sector output.