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Over the past three years, 630,000 more people of working age have become economically inactive © Tolga Akmen/EPA-EFE/Shutterstock

Bank of England officials do not usually pore over the details of NHS waiting lists. But, in recent months, the health of the UK workforce has become an urgent question for monetary policymakers.

Britain avoided big job losses at the height of the pandemic but, since Covid-19 lockdowns lifted, it has seen an exodus of older workers from the labour force. The number of people of working age who are economically inactive — neither working nor looking for a job — has risen by more than 630,000 since 2019. And, in contrast with other countries, there has been no sign of them returning — even as inflation puts new strains on household finances.

On current trends, the UK will soon be the only country in the OECD where the workforce remains smaller than it was before the pandemic. At present, it is behind only Latvia and Switzerland.

Ill health does not seem to be the main driver of this wave of early retirement, according to a data analysis by the Institute for Fiscal Studies think-tank. Many older workers said they wanted a change in lifestyle and could afford to retire, while others felt they were forced out by ageist recruitment practices or an alienating workplace culture.

But growing numbers of people who were already out of work at the start of the pandemic say health conditions have prevented them returning. The latest official data show a record 2.5mn working-age people are inactive because of long-term sickness, up from 2mn in spring 2019.

“People are choosing to stop working or looking for work . . . the after-effects of the pandemic on health are probably a key driver,” said Huw Pill, the BoE’s chief economist, last month — speculating that long Covid, lengthening NHS waiting lists, a rise in mental health issues and the growing need to care for family members at home “have all weighed on labour force participation”.

While worsening health among the UK population is an emergency in its own right, with at least 5.5mn people in England waiting for hospital treatment, it also has serious repercussions for the economy.

Jonathan Haskel, an external member of the central bank’s Monetary Policy Committee, believes official data understate the extent of health-related inactivity, because health is often an underlying factor when people decide to retire early. He argues that the crisis in the NHS is exacerbating a shortage of workers, fuelling wage growth and threatening to create “inflationary pressure in the UK for longer than other countries”.

If this is true, the BoE may feel the need to raise interest rates further and keep them high for longer than it otherwise would — deepening the recession the UK already faces as a result of the energy price shock.

A smaller workforce will also be a lasting drag on economic growth. In the decade before the pandemic, a boom in employment was the main reason the economy kept growing, helping to offset the UK’s persistently poor performance on business investment and productivity.

Line chart of Cumulative change in number of 16-64 year olds who are economically inactive due to long-term sickness (’000) showing Down and out

The Office for Budget Responsibility, the country’s fiscal watchdog, has now slashed its forecasts for UK growth over the medium term, noting that “several adverse developments” can be “traced back to health-related issues”. The OBR has also flagged one direct consequence for public finances, saying it expects spending on disability and health-related benefits to be £7.5bn higher than it predicted at the time of its previous forecast in March, with the number of people claiming these benefits up by more than 1mn.

Even if there is no immediate solution to the crisis in the NHS, labour market experts say much of this cost to the economy could be avoided if government and employers did more to help people with health conditions remain in their jobs — or return to new ones.

Surveys seeking to pinpoint the types of medical problems keeping people out of work show no rise in progressive illnesses such as cancer, and the Office for National Statistics says it is unlikely long Covid — despite its debilitating effects — accounts for much of the increase in inactivity.

“We were expecting a tsunami of long Covid, but that has not materialised,” said Nick Pahl, chief executive of the UK’s Society of Occupational Medicine. He notes that there has been a significant increase in back and neck problems — potentially the result of remote office workers hunching over laptops on their kitchen tables — as well as a rise in mental health problems.

But the main issue, he says, is that people who have dropped out of work with a health condition are no longer returning at the rate they used to — whether that is because they are on an NHS waiting list or because public services routinely fail to offer the kind of support people need to return to work swiftly. “Every day someone is off sick, there is less chance of them returning,” Pahl said.

“Your health does deteriorate the longer you are out of work,” said Tony Wilson, director of the Institute for Employment Studies, a consultancy. He believes that people who stopped working for various reasons around the start of the pandemic have since fallen sick and found themselves stranded.

There is “vanishingly little” employment support in the UK for those with health conditions, he says, adding that people are usually referred for support only once they are receiving treatment — meaning that bottlenecks in the NHS are preventing them getting through.

Meanwhile, decent employers might adapt a job for an existing employee whose health has worsened, Wilson says, although “it’s very hard if you’re applying for a job, especially as most are not advertised as flexible”.

“Employers have a lot of responsibility here,” he added. “It’s in their gift to make work more flexible.”

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