Chris Bridges has plans to put mobile phones in their place. The scientist, based at the Surrey Space Centre, at Guildford, is preparing to put one into orbit round the Earth. Call roaming will never be the same again.

In fact, Bridges's little satellite, called Strand, has a very serious purpose. Its payload, a Google Nexus 1, contains – like other modern mobile phones – some highly sophisticated miniaturised components: complex sensors for running Google Maps, devices called accelerometers that allow users to play electronic games, powerful computing chips and tiny, long-lasting batteries.

Bridges wants to test these to see if they perform well in outer space and hopes to launch his probe by the end of the year. If he succeeds, mobile phone components could soon be used as the building blocks of a new generation of cut-price satellites, he says.

"The mobile phone industry has spent billions on miniaturising components," he says. "We want to see if these could be used in satellites. Instead of spending a fortune on custom-built components for probes, we could use off-the-shelf devices."

Dr Chris Bridges, of Surrey Space Centre, with his Strand satellite designed to test mobile phone components in space. Photograph: Antonio Olmos for the Observer

The idea is intriguing, and typical of the ingenious approach to satellite manufacture that has been taken by Surrey University Space Centre, and its parent company, Surrey Satellites Technology. The two outfits have built more than 30 compact, highly sophisticated satellites for customers over the past 30 years and was last year awarded a contract to build a series of 15 spacecraft for Europe's Galileo navigation system.

Nor is the Surrey University group alone – for space has recently been revealed to be a real bread-winner for the UK, with news that our out-of-this-world activities are now adding £7.5bn a year to the national economy, while providing jobs for 25,000 people. Surrey Satellites build innovative spacecraft; universities such as Leicester and Surrey have strong space science and engineering departments; the nation plays a key role in constructing major European probes such as the Planck telescope; and its software and computing companies are renowned for their data-handling expertise.

Last month Nasa released pictures, taken by its probe Messenger, of the planet Mercury, that were captured by sensors supplied by e2v, in Chelmsford, Essex. Meanwhile last week a deal was struck with China for UK companies DMCii and Surrey Satellites to build high-resolution spacecraft to monitor China's industrial growth.

This happy state of affairs will provide an encouraging background to the national UK Space Conference which opens on Monday 4 July in Coventry. Certainly, delegates will find plenty of cheer in recent developments. However, in their quieter moments, they will acknowledge that crucial issues remain to be resolved: most importantly there is concern as to how we maintain and improve our current efforts – for it is a simple fact that the world's space industry is now at a crossroads. America's reusable space shuttle is set to make its last flight this month and the world will then have to go back to using the same old, expensive expendable rockets that flew Yuri Gagarin into space.

New ways of getting into orbit are now being urgently pursued by entrepreneurs, most of them in America, while space engineers are designing smaller and smaller spacecraft to fly on existing launchers. It raises interesting issues for Britain. As a nation we have given the world Dan Dare, Doctor Who and the stories of Arthur C Clarke but, in real life, we have had a woeful record for launching rockets or flying spacemen until recently. Now we have a second chance to become a space power, a point stressed by Professor Richard Brown, director of the Centre for Future Air-Space Transportation Technology, at Strathclyde University.

"Britain has innovative and original technologies that could revolutionise the way we get into space and exploit it when we are there," he says. "But we have to act, and soon. We can either sit on our hands and carry on as we are – underfunded with small companies – or we can decide for once that UK engineering has something to offer."

And this is a key point, for Britain's efforts still fall behind other nations such as France, German and Italy in terms of government support. Far more public cash is committed to supporting space there than in the UK. If Britain is to raise that £7.5bn annual input from space activities to £40bn by 2030, as ministers have urged, they must realise that major government investments will be needed. Emma Lord, director of policy for the UK Space Agency, remains hopeful, nevertheless. "There is a distance to go but the signs are very positive," she says.

In fact, there are two basic approaches that can be taken. One is to make spacecraft smaller and smaller, and more and more sophisticated. This gets around the problem of the cost of satellite launches. These are high because they involve sacrificing an entire three-stage rocket each time you put a payload into orbit. The price tag works out at around £10,000 a kilogram. (By comparison, a commercial airliner charges only a few pounds per kilo.)

"It is the equivalent of flying a 747 airliner from Heathrow to New York and then scrapping the plane at the end of the flight," says UK space engineer Alan Bond, of aerospace company Reaction Engines, based in Culham, Oxfordshire. "Exploitation of space simply cannot be expanded that way."

And that is the next real hurdle: finding a way to access space in the same simple way that airliners access the skies. "We cannot truly exploit space until we find a way to get launch costs down by an order of magnitude," says Professor Brown. But how? And can the UK play a role in that revolution? Brown believes we can, and points to Reaction Engines as Britain's greatest hope. It has developed Skylon, a revolutionary, pilotless, reusable spaceplane that is currently in a proof-of-concept phase but which, it is hoped, will be carrying cargoes of up to 12 tonnes into space by 2020.

Skylon will take off like an airliner, cruise into space, release a cargo of up to 12 tonnes and then power down to a landing, on a runway, like a jet, thus slashing launch costs from £10,000 a kilo to £1,000 or less. Its secret lies with its hydrogen-fuelled engines, which will burn oxygen from the atmosphere like a jet at low altitudes and oxygen from an on-board tank when in space.

It sounds simple but has required years of careful design. "The problem about using jet engines at very high speeds is that air enters them at incredible speeds, about one kilometre a second, because the plane is flying so fast. The friction between air and metal raises temperatures to around 1,000C inside the engine," says Bond.

"We have to get that temperature down – and the trick is to use Skylon's liquid hydrogen fuel. Using heat exchangers beside the hydrogen tanks, we can cool that incoming super-hot air so that we can get engine temperatures down. We can keep our engines running and get the craft to a height of around 16 miles, about three times the height that a civil jetliner flies at. At that point, where the atmosphere is very thin, the onboard tank of oxygen is switched on and the craft flies on as a rocket – and into orbit."

Once in space, Skylon will release its cargo – which could include manned capsules – and then return to Earth by gently slowing its speed. The craft will descend into the atmosphere "like a balloon", says Bond. "It carries hydrogen as its main fuel and that is very light. So Skylon will not drop like a brick, like the space shuttle did, and so will not need to be clad in thick, expensive tiles to protect it from the heat of re-entry. We will just use silicon carbide-reinforced glass, which is simple and easy to use. Then, after a couple of days of refitting, Skylon will be ready to fly again."

That quick turnaround time and the absence of expendable components will slash costs, though it should be noted that Skylon still exists only in design stage, as pieces of paper, computer graphics and equations. No hardware has yet been built, though its basic principles were recently investigated, at the request of the British government, by the European Space Agency, who gave the spacecraft a clean bill of health – both technologically and economically.

"Our next stage is to build a test engine," says Bond. That will need an investment of £200m, which he says has already been promised by investors. "Then around 2014, we hope to begin construction of the first full-sized Skylon. That will cost £7.5bn. It is a Channel Tunnel-sized sum of money. We are looking for institutional investors for all of that and are confident about getting them. This is a commercial enterprise, completely. After that, the first Skylon craft should be flying in space by 2017 and by 2025 there should be about 30 up there."

In doing so, Skylon should slash the price of space flight by one or two orders of magnitude, although it is also clear that other US companies are backing projects to build reusable spaceplanes though these will probably use different technologies. If nothing else, the race is on to open space.

But what will we do when we get there? Once again, British scientists have answers – such as Professor Stephen Sweeney of Surrey University's physics department, who is part of an international group that wants to exploit space – for its sunshine. "In space, you get can collect almost five times more energy from a strip of photovoltaic cells that you can on the ground," he says. "All you have to do is get lots of them up there – and if launch costs drop by 10- or 100-fold that becomes feasible. Then you can build giant orbiting stations and beam down that energy to Earth using lasers. It is safe and non-polluting."

This point is backed by Dr Craig Underwood, of the Surrey Space Centre. "When we really open up space, all sorts of things like that become feasible. The great thing is that Britain has a chance to be a player."