UK lags badly in innovation, warns expert

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ONE OF the world's leading business gurus warned yesterday that the UK needs a huge transfusion of funds into higher education and research and development, far tougher competition rules and a big reduction in tax if it is to have any hope of closing its competitiveness gap with other countries.

Michael Porter, a Harvard Business School professor, met Peter Mandelson, Trade and Industry Secretary, yesterday, and will meet Gordon Brown, the Chancellor, next week. His warnings came ahead of the Competitiveness White Paper, due next Wednesday.

Professor Porter, author of the 1990 best-seller The Competitive Advantage of Nations, said it had come as a shock to him in his latest research to find that the UK had fallen so far behind in its capacity to innovate. In a "national innovation index" based on factors such as spending on research and development, spending on higher education and the protection of intellectual property, the UK languished eighth out of nine leading industrial nations. Only Italy trailed behind.

"The UK used to be among the major innovating nations in the 1970s, but it has now declined," he said. "Per capita income stinks, productivity is low and the national capacity to innovate is shrinking."

He said the Conservative economic reforms of the 1980s, at one time thought to have generated a British productivity "miracle", had helped by attracting inward investment. But the economy now stood at a decisive point - particularly as his research showed that for all countries it was getting harder over time to innovate.

Professor Porter said next week's White Paper, of which he had been given a preview, shared much of his diagnosis of the problem.

Top of the list of his forthright advice for British ministers is the need to invest far more in university education and human resources generally. "It's going to take a lot of money pouring in. There has been massive under-investment for a decade."

He also urged a reform of competition policy. "Merger approval and the regulatory process is overly politicised. Too many competition-destroying mergers are occurring."

He advocated a halving of capital gains tax in order to boost investment and a broad tax credit for research and development.