The UK's investment in innovation has fallen by £24 billion since the 2008 recession, says a report by charity research fund Nesta.
It said that the collapse in investment could lead to 'deep rooted' problems in the economy.
According to Nesta, a 'crisis of confidence' in the decade from the year 2000 saw businesses prioritising 'cash and concrete' over 'investment in innovation'.
Surveying 1,200 businesses, it found that innovation investment fell by seven per cent, or £7.4 billion, between 2008 and 2009. It fell a further 14 per cent, or £17 billion, from 2009-11.
The £24 billion reduction in private sector spending on innovation is five times the amount the Government spends each year on science and technology research.
Nesta said the figures 'should act as a wake-up call for government and business as innovation is one of the most important drivers of sustainable economic growth.'
According to research by the charity, innovation delivered 63 per cent of the UK's economic growth between 2008 and 2009.
Geoff Mulgan, Nesta's CEO, said, "Everyone agrees that innovation is the only route to long term growth.
"The concern is that today's report and Investment Index show that investment in the future didn't just fall during the immediate aftermath of the financial crisis, but also continued falling as the economy appeared to stabilise."
The research highlighted that the manufacturing sector accounted for 77 per cent of business investment into research and development - representing 17 per cent of UK GDP. Personal services and financial services were also key players in innovation investment, while agriculture, mining and construction were the lowest investors.
Only 13 per cent of innovation investment now takes the form of research and development. Other important types of innovation included design, software development, innovative training and organisational development.
Mulgan added: "Other countries are making investment in innovation a top priority and the UK cannot afford not to do the same.
"Our data shows that British business prioritised cash and concrete over investment in future technologies and services, a potentially disastrous decision that now needs to be put right."
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