Gordon Brown will be told this week that Britain is in danger of falling well behind competitor economies and emerging countries such as China and India because of “complacency” over levels of business innovation.

The prime minister will this week address a conference of 3,000 people in Westminster, at which Nesta (the National Endowment for Science, Technology and the Arts), will say that while Britain has some strengths in high technology, notably in pharmaceuticals and aerospace, even in these areas it is in danger of falling behind.

A report on “total innovation” carried out by Nesta, to be published on Tuesday, says that Britain lacks large-scale, high-technology manufacturing and that the growth of high value-added activities in countries such as China is being associated with increasing levels of innovation in these economies.

In aerospace, it says, the competitive threat is intensifying from Taiwan, Indonesia, Brazil and Japan, while in pharmaceuticals the threat comes from a wide range of countries, including China, India and many economies in eastern Europe.

The UK “performs poorly” in innovation, the report says, and “is up against rapidly increasing international competition”. There is, it says, “too much complacency” about Britain’s ability to compete and innovate even in these sectors.

Jonathan Kestenbaum, Nesta’s chief executive, said policy had concentrated too much on raising levels of research-and-development spending and not enough on the wider issue of making British business more innovative.

“Total innovation is much more like acupuncture than surgery,” he said. “The key to it is that it involves a much more integrated, system-wide approach.”

The report says: “Of course, the UK needs to remain an attractive place for major firms to locate their R&D activities . . . but this is no longer sufficient. Firms and entrepreneurs need to explore and experiment with new business models and different commercial strategies.” It says the key to competitiveness is what it calls hidden innovation, which involves learning on the job, new organisational structures, combining technologies and methods in new ways and uncovering a range of small-scale or “micro” improvements.

One fear about Britain is that too much manufacturing has been outsourced to other countries to deliver these gains.

Nesta was set up as an independent body to invest in innovative start-up and early-stage businesses in Britain, with an endowment of £300m.

As well as Gordon Brown, its conference at the Royal Festival Hall will be addressed by Bob Geldof and Sir Tim Berners-Lee, inventor of the worldwide web.

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