Lord Mandelson has been urged to use taxpayers’ money to aid innovation rather than bailing out dying industries, according to a Kingston University report commissioned by Lord Mandelson’s Department of Business, Innovation and Skills.

An overhaul of bankruptcy rules, creating a British equivalent of California’s high-tech hub, Silicon Valley, and encouraging previously unconnected industries and trades to co-operate were among the recommendations to ministers.

A think-tank including Professor Robert Blackburn, Professor Richard Whittington of Oxford’s Said Business School and Professor Charles Baden-Fuller of City University’s Cass Business School recommended that firms must innovate and explore new ideas as well as cutting costs to have a better chance of surviving and growing in the recession.

Firms that only cut costs, dubbed corporate anorexics, might survive the recession – in spite of forcing people to work harder rather than more effectively – but fail in an upturn due to a lack of resources, the think-tank warned. 

The think-tank also recommended that ministers help businesses by giving financial help to innovative projects based on new ideas and ways of working rather than by subsidising existing companies.

The report suggests that ministers could promote examples of companies that had grown stronger in previous recessions and celebrate the importance of entrepreneurs, as well as creating “innovation laboratories” where organisations could experiment on ideas outside their conventional business.