UK music company revenues last year grew at the fastest rate since the height of Britpop in the mid-1990s, as the growing popularity of services such as Spotify resulted in income from streaming overtaking CD sales for the first time.

UK record labels enjoyed a 10.6% surge in earnings in 2017 to £839m, thanks to the digital popularity of a new generation of artists including Ed Sheeran, Sam Smith, Dua Lipa and Stormzy. It was the fastest growth since 1995, when Oasis, Blur and Pulp created a high-street CD sales frenzy.

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Music companies enjoyed a 45% year-on-year increase in subscription streaming revenue – from £239m in 2016 to £347m – as an industry hammered for a decade by illegal piracy now enjoys the success of music lovers turning to legitimate services such as Spotify, Apple Music and Amazon Music.

Royalty income from the sale of CDs, which have been in decline since the onset of the digital music era almost two decades ago, edged up 0.7% on the previous year to £246.9m in 2017.

Record labels may be enjoying the fruits of new-found digital growth, but they say that not all tech companies are treating the industry fairly. The report from music industry body, BPI, shows that labels and their artists earn more than double the royalties from vinyl record sales than they did from payments from the viewing of music videos on Google-owned YouTube last year.

UK vinyl sales grew for the 10th consecutive year to a 26-year high of 4.1m units, driven by albums from Liam Gallagher, Fleetwood Mac and the Guardians of the Galaxy film soundtracks, generating £55m in royalties. By contrast, music video streaming, dominated by YouTube, which made ad revenue from more than 25bn UK music video streams last year, funnelled just £27m to the industry. This was a small increase on the £23.3m paid out in 2016. By comparison, revenues from LP sales rose a healthy 23.6% year on year, from £44.6m to £55m.

Last year, a leaked memo from Steve Cooper, the chief executive of Warner Music, said its new deal with YouTube was so one-sided that it couldn’t be called a “free market, willing buyer, willing seller” negotiation. “Government action is is needed to remedy the continuing ‘value gap’ so that all digital platforms pay fairly for their use of music,” said Geoff Taylor, chief executive of the BPI and the Brit Awards.

The BPI said the total £839m the labels made from streaming, downloads, physical sales and licensing for use in films, TV and computer games was the highest amount since 2010. However, it is still nearly one-third lower than the UK music industry’s peak year of 2001, when income topped £1.2bn.

Taylor said there were no signs of growth slowing down, with innovations such as Amazon’s Echo smart speakers, which are promoting the playing of music around the home, and the launch of a premium music service from YouTube set to fuel further growth.

“The changes labels have made to their business models and their investment in new talent have borne fruit,” Taylor said. “We are likely to see a continuing rise in 2018, with increasing awareness about consumers about the benefits of music streaming, and new developments that are likely to encourage the uptake of more subscriptions.”