Increasing government support for higher education and sustaining spending on the science base are crucial to revamping the UK's failing competitive edge, according to research that will influence the government's innovation strategy.

In a report to the Department of Trade and Industry, Harvard Business School's Michael Porter and Christian Ketels say that the UK needs an approach focused on improving skills, stimulating innovation and fostering enterprise - all roles outlined for universities in the government white paper.

Professor Porter's report says that UK competitiveness is falling behind its rivals and that a step change in strategy is needed. Developing products and assets that are unique will be key, rather than trying to compete on cost.

The regions will become more important, while central government will have to give up some of its control over the competitiveness agenda; the private sector should take over setting policy priorities.

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The research was commissioned by the DTI to investigate the persistent UK productivity gap. Sponsored by the Economic and Social Research Council, it will feed into the DTI's innovation review, due in the autumn.

"Universities and public research institutions need new structures to strengthen their roles as active parts of the regional business environment," Professor Porter writes. "In the past, universities did basic science, while companies worked separately on applications for commercial use. Today, these boundaries have blurred."

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The authors said in the past the UK had been successful in getting high capital from its higher education spend.

Details: UK Competitiveness: Moving to the Next Stage by Michael Porter and Christian Ketels. Available from the DTI.