Investment in innovation by British businesses has fallen by £24 billion since the recession began, resulting in a “lost decade” of innovation, according to a new report.

The latest Innovation Index published by independent charity Nesta found that investment in innovation fell by 7% (or £7.4 billion) between 2008 and 2009, as the recession began, and a further 14% (or £17 billion), between 2009 to 2011, according to a survey of 1,200 businesses.

This is largely because businesses are choosing to invest in 'tangible' assets, such as gold and property, rather than 'intangible' assets such as R&D, design, training and innovative skills, software development, branding and organisational innovation.

Nesta believes that this is a mistake, as innovation via these intangible assets is one of the most important drivers of sustainable economic growth; between 2008 and 2009 innovation delivered 63% of the UK's economic growth.

“Other countries are making investment in innovation a top priority and the UK cannot afford not to do the same,” said Nesta's CEO Geoff Mulgan.

“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.”

Relative to their size, the biggest innovation investors among the UK's sectors are manufacturing, personal services and financial services. The business services sector's largest investment is in skills and organisational innovation.

Over the next few months, Nesta plans to set out the details of what it calls Plan I – a plan for innovation-led growth – as an alternative to the “increasingly sterile debate” between Plan A and Plan B.

Earlier this month, the European Commission announced plans to invest €1.5 billion (£1.2bn) in information and communication technologies to support the Digital Agenda's ICT research funding targets and create new growth and jobs.

The funding is part of a wider €8.1 billion investment in research and innovation to support projects and ideas that will boost Europe's competitiveness and tackle issues such as health, the environment, urbanisation and waste management.

“Knowledge is the currency of the global economy,” said European Research, Innovation and Science Commissioner Máire Geoghegan-Quinn. “If Europe wants to continue to compete in the 21st century, we must support the research and innovation that will generate growth and jobs, now and in the future.”