The UK can only achieve healthy economic growth and job creation by boosting its high tech capabilities and innovation across the economy, according to a new report published by NESTA, the National Endowment for Science, Technology and the Arts.

Rebalancing Act provides new analysis on how to rebalance the economy.  It shows that a full-blooded revival of the wider manufacturing sector is wishful thinking and would require growth rates not seen since the Second World War.  

NESTA worked with Oxford Economics to develop four scenarios for the future balance of the economy, and applied them to an economic forecast model showing how each will affect economic growth, regional performance and employment in the UK. The four scenarios are:

*  'Business as usual', in which the UK continues to rely on financial and business services with no significant rebalancing

*  A full-blooded manufacturing renaissance, where we close half the gap between the UK and leading EU manufacturing nations

* A high-tech growth scenario, where recovery is driven by growth in high-tech sectors

*  An innovation scenario, where investment in innovation across the economy increases productivity

Jonathan Kestenbaum, NESTA's chief executive said: 'Our analysis puts paid to the notion that a broad-based manufacturing renaissance will drive recovery. Instead, it shows that a recovery based on high technology and innovation offers the best prospect for growth.'

The report acknowledges that this won't be easy to accomplish. But it also makes clear that if we don't rebalance the economy, the UK's employment rate will stagnate in the first half of the decade. Regions like Wales and the North East will suffer particularly from poor growth.

In practice, this means that the government should pay special attention to the small minority of high growth businesses that generate the bulk of job creation and which have shown to be disproportionately

innovative.

The report suggests focusing support for these businesses by using small-scale, often private-sector programmes that encourage high-growth.  At a time of budget constraints, this is more effective than costly government programmes such as Business Links which offer general business support but lack a clear focus on high growth businesses.

NESTA also argues that existing government spending - such as public procurement and further and higher education spending - should take account of the potential of the UK's high-tech sectors, and highlights this as a priority area for future policy work.

Jonathan Kestenbaum concluded: 'At a time when the UK needs to look for new sources of growth, providing the right conditions for high-tech companies should be a priority. We only need look at successful clusters across the UK such as the life sciences and the video games cluster in Dundee to see what can be accomplished when policy works in the interest of enterprise and innovation.'