UK Economy at Risk Due to Long-Term Illness Crisis

The U.K. economy is facing a number of challenges, including sky-high inflation and energy costs, a Brexit-related trade tailspin and a recession. One of the most significant problems is the record number of workers reporting long-term sickness. This is having a major impact on businesses and the economy as a whole.

According to the Office for National Statistics, the number of people citing long-term sickness as the main reason for economic inactivity has increased by around half a million since 2019. This means that in the period between June and August 2022, around 2.5 million people will be affected by this issue.

The number of people who are "economically inactive" - that is, those who are neither working nor looking for a job - has risen by more than 630,000 since 2019. This is in contrast to other major economies, where recent data shows that lost workers are returning to the labor market. In the UK, however, there is no sign that this is happening, even as inflation and energy costs put huge pressure on household finances.

The U.K. avoided mass job losses during the Covid-19 pandemic thanks to the government's furlough program, which subsidized businesses to retain workers. But since lockdown measures were lifted, the country has seen a labor market exodus of unique proportions among advanced economies.

The UK's Office for National Statistics (ONS) suggested last month that a number of factors could be behind the recent spike in hospital admissions, including National Health Service waiting lists that are at record highs, an aging population and the effects of long Covid.

According to the ONS, younger people have seen some of the largest relative increases in job losses, and some industries such as wholesale and retail have been affected to a greater extent than others.

The report suggested that the increase in the number of people on long-term disability has been driven by "other health problems or disabilities," "mental illness and nervous disorders," and "problems connected with [the] back or neck." Though the exact effects of these issues have not been quantified, they are likely to have a significant impact on those affected.

Jonathan Portes, professor of economics and public policy at King’s College London, told CNBC that the depletion of the labor market is likely due to a combination of long Covid, other pandemic-related health issues such as mental illness, and the current crisis in the NHS.

In addition, he noted that factors that directly hurt public health, such as increased waiting time for treatment, could have a knock-on effect: people may have to leave the workforce to care for sick relatives.

According to Portes, the U.K. has been in a similar situation before, at least twice. In the early 1990s, the U.K. experienced a sharp recovery, with falling unemployment, after 'Black Wednesday.' However, there was also a large and lasting increase in the number of people claiming incapacity-related benefits. Portes notes that not working is generally bad for both health and employability.

The government's response to the crisis in the NHS has been inadequate, and its policies on supporting sick and disabled people to return to work are insufficient. Instead of helping people on Universal Credit, the government is harassing them with penalties and sanctions, which we know don't help much.

In his recent Autumn Statement, Jeremy Hunt announced that the government will ask more than 600,000 people receiving Universal Credit to meet with a “work coach” in order to establish plans to increase hours and earnings. Universal Credit is a means-tested social security payment to low-income or unemployed households, and the government is hoping that by meeting with a work coach, recipients will be able to increase their hours and earnings.

Hunt also announced a review of the issues preventing reentry into the job market and committed £280 million ($340.3 million) to addressing these issues over the next two years. This includes £280 million to “crack down on benefit fraud and errors”.

The UK economy has been hit hard by the pandemic, but the rise in long-term sickness claims actually began in 2019. Economists see several possible reasons why the country has been uniquely vulnerable.

Portes argued that the government's austerity policies - a decade of sweeping public spending cuts implemented after former Prime Minister David Cameron took office in 2010 and aimed at reducing the national debt - had a significant role in leaving the UK vulnerable.

According to Portes, the U.K. was especially vulnerable to the pandemic due to austerity measures. NHS waiting lists were rising sharply and performance/satisfaction was falling sharply before the pandemic hit.

Austerity measures have had a profound impact on those receiving incapacity and disability benefits, leading to poorer health outcomes. This is especially true for low-income individuals and families who have borne the brunt of the austerity measures.

The data bears this out: The ONS estimates that between 2018 and 2020, males living in the most deprived areas of England on average live 9.7 years fewer than those in the least deprived areas, with the gap at 7.9 years for females.

According to the ONS, both sexes have seen increases in inequality in life expectancy since 2015 to 2017. This is a statistically significant finding.

According to a recent report from the House of Commons, NHS waiting lists in England have grown at the fastest rate since records began in August 2007, with more than 7 million patients on the waiting list for consultant-led hospital treatment as of September. This is a direct result of the pandemic, and highlights the need for additional support for the NHS in the coming months and years.

The report noted that the waiting list for social housing has been growing rapidly since 2012. However, this is not a recent phenomenon.

The waiting list for food assistance programs was over 4.5 million in December 2019, a 74% increase from December 2012. This pandemic has only exacerbated the problem, with millions of people now struggling to put food on the table.

The rise in waiting lists has been accelerated by the pandemic, but it was also taking place for several years before the pandemic.

Michael Saunders, a former Bank of England policymaker who is now a senior policy advisor at Oxford Economics, told CNBC that the U.K. has been particularly badly affected by Covid in terms of severity. He said that some of this may have been the result of the country’s higher rates of preexisting health conditions, such as obesity, which may have been exacerbated by Covid.

"The U.K. has a relatively high level of inequality, which may be one of the reasons why we've seen a greater impact on public health from the Covid pandemic. If you have a larger number of people who are worst affected by the virus, you're likely to see a bigger overall effect."

Saunders argued that the government's growth strategy should include measures to address the health-care challenges facing the labor force and the economy as a whole.

"The health and economic impacts of climate change are both significant and interrelated. Addressing one issue will help to mitigate the other, and vice versa. Climate change is a major threat to human health, as well as to the global economy. Taking steps to reduce its impact is essential for the well-being of both people and the planet."