State of UK Business 2024: Emerging Optimism
Our second annual survey of 1,500 business leaders reveals an emerging optimism for growth and a feeling that the UK is on a positive course. Learn more.
By Raoul Ruparel, Nick South, Ben Horner, Stephen Sutherland, Hong Sheng Lim, Ilia Gorshkov, Helena Fox, Annabel Brunner, Ilse Bosch, and Jonathan Devereux
The UK is at a crossroads when it comes to the nation’s health. In the aftermath of the COVID-19 pandemic, pressures on the healthcare system have continued to rise despite health spending being at record highs.
The impact of this pressure is seen in the stark rise in the number of people out of the workforce due to long-term illness. While many countries saw this economic inactivity rise post-pandemic, the UK is alone among peers in seeing it continue to increase – all others have returned to their normal levels or below.
Many thousands of working-age people in England who might otherwise be in stable employment are out of the workforce entirely due to morbidities (in some cases as many as five), requiring coordinated and early intervention. To keep these people in work on their return, there needs to be a holistic and creative future approach to public policymaking that supports this aim.
Why does this matter?
Not only does economic inactivity due to ill health have serious impacts on individuals’ wellbeing, creating a social need for action, it also has significant economic and fiscal costs to the economy. As such, tackling the rise in long-term sickness and its impact on employment will undoubtedly be a priority for the next government, whoever may form it. This applies both in terms of what policy is developed as well as how this is delivered by the complex system of national, local and mayoral government.
However, the solutions are not simple. It is not just a case of throwing more money at the issue, though investment will be required. Too often the public sector is set up to treat the symptoms of a problem rather than an underlying cause. Tackling these sorts of complex issues requires a new approach. The healthcare system alone cannot address the wide-ranging drivers of long-term sickness and ill health. Over 50% of health outcomes are influenced by non-healthcare factors, such as environmental conditions, lifestyle, and social networks.
To better tackle the root causes, a comprehensive whole-of-government approach (WGA) is required. This means looking at health as a priority across all areas of policy, with departments, agencies and partners taking a joined-up approach to health that is outcome-first focused.
This interim report sets out why a WGA to health is needed and how it can be taken forward by a new government. Based on analysis of data from the Office for National Statistics and Eurostat, including previously unpublished data and a detailed economic model, it surfaces fresh insights on the economic and fiscal benefits of reducing economic inactivity due to long-term sickness. It serves as a key example of the type of complex health and economic issues which cannot be tackled by the healthcare system alone. For more information on our approach to economic and fiscal impact estimation and additional insights, please access the Annex here.
This piece will be followed by a larger report, to be published in early autumn 2024, that will provide a series of recommendations across both the short and long term on how a WGA can help tackle complex health challenges across the public sector.
For our purposes we define a WGA as a coordinated approach across different levels of government and delivery partners in pursuit of a common set of cross-cutting goals and objectives. WGA signals that, for certain complex problems such as tackling the rise of long-term sick, economically inactive, there might be a need to shift from single-purpose organisations that deliver in silos to an integrated system where the interrelated political, social, health and economic factors of policies are addressed in coordination.
WGA is designed to maximise resources and ensure capital is deployed in the most impactful and efficient way across the entire public sector. A whole-of-government approach does not mean fundamental machinery of government changes, or wholesale workforce reforms. Rather, it focuses on a coordinated approach across His Majesty's Government (HMG) to achieve common goals or to deliver required interventions.
There has been much recent attention on the impact of long-term sickness on employment. However, the conversation often blurs distinct issues and fails to unpack the underlying drivers. We will establish some key facts:
Following a historic low prior to the pandemic, the number of people out of the workforce in the UK has risen by 900,000. There are now 2.8 million economically inactive long-term sick, representing around 30% of the total inactive population. Crucially, while the early post-pandemic days saw a rise in those taking early retirement or remaining in education, these trends have reversed. Now, 85% of this rise in economic inactivity is down to long-term illness (750,000).
Given the speed and size of this rise, it is important to ask whether it is truly being driven by worsening health. We will examine this more closely in our full report but there are two key points to note:
The rise in long-term sickness is causing people to drop out of the workforce, but what is driving the uptick in sickness and who is it impacting most?
Two main groups have driven the recent rise in the population of long-term sick, economically inactive: 18-24-year-olds and 50-64-year-olds, with the latter accounting for 55% of all inactive long-term sick. The fact that the older group has been a key driver is not surprising (health deteriorates as people age), but the younger end of the spectrum is both surprising and concerning (given this should be the healthiest group in the population).
Another feature of both groups is the rapid rise in those reporting multiple conditions. Over 40% of the 50-64-year-old demographic report five or more conditions and they have been the fastest-growing cohort within that group since 2019. However, even more concerning is the rapid rise among those in the youngest age group reporting five or more conditions. This was the fastest-growing segment across all age ranges, seeing an 18% compound annual growth rate (CAGR) between 2019 and 2023.
In terms of conditions, musculoskeletal (MSK) and mental health issues account for around 50% of all those reported by the long-term sick, economically inactive. Data shows that growth in mental health conditions in this population extends beyond the pandemic impact, steadily rising since 2017/18 and remaining the most reported condition among 16-24 and 25-49-year-olds.
The final question posed by our analysis is whether all of this could be a result of COVID-19 and therefore common to many countries. However, the data and evidence show that this is not the case and that the UK is an outlier compared to similar countries. Exhibit 3 shows that while many European countries saw a rise in economic inactivity during the pandemic and in the immediate aftermath, they have all seen levels fall back to previous levels or below.
Levels and drivers of inactivity vary from country to country (for example, by female and young people’s labour force participation), so there are nuances when comparing the UK to peers. For example, while Italy has higher inherent levels of inactivity (at 33%), it is driven by high levels of female inactivity (42% vs 29% EU average), with an emphasis on ‘family’ as one of the key reasons.
Since 2021, the UK has shown the fastest growth in both the overall level of economically inactive and those who are economically inactive due to long-term sickness (Exhibit 3). The UK now has the largest share of inactive due to sickness in the total population at 7%. These are trends and drivers which are not seen in any other peer country nor seen historically in the UK.
Solving this sort of challenge is complex. In his review, ‘Fair Society, Healthy Lives’ (the Marmot Review),
“Social inequalities in health arise because of inequalities in the conditions of daily life and the fundamental drivers that give rise to them: inequities in power, money and resources. These social and economic inequalities underpin the determinants of health: the range of interacting factors that shape health and wellbeing. These include: material circumstances, the social environment, psychosocial factors, behaviours and biological factors.”
His review focused on what are now well-established social determinants of health, including:
It is widely accepted that across all domains of a person’s life and contribution to society, these determinants of health, most of which remain out of an individual’s control, will impact their quality of life and life expectancy. This can be through a direct impact of national or local policy (for example, poor or no housing), indirect impact (for example, in relation to how investment and training funding is allocated across regions) or consequential impact (given the impacts on a person’s choices, opportunities or behaviours that result from existing inequities). For example, the public sector already accepts that employment is one of the most important determinants of physical and mental health – the long-term unemployed have a lower life expectancy and worse health than those in work.
There is much that affects an individual’s health which lies outside of the purview of both the NHS and the Department for Health and Social Care (DHSC). As such, improving the health of both an individual and the population requires a broader approach than the healthcare system alone. Economic inactivity driven by long-term sickness is a prime example of where the wider social determinants of health mean that solutions directed solely through the healthcare system (or the benefits system, for that matter) are unlikely to be successful.
This is reinforced by the fact that when people engage with the public sector healthcare system, they touch a wide array of different departments and organisations, not just the NHS or DHSC.
To demonstrate this, we have developed two citizen journeys to highlight how someone who is long-term sick and economically inactive might interact with the healthcare system. We have drawn our examples from some of the fastest-growing segments of the long-term sick, economically inactive population: 50-64-year-olds with five or more comorbidities and 18-24-year-olds with a single health condition.
These citizen journeys highlight three key points:
Citizen Journey 1 (Exhibit 4.1) illustrates the case of a 55-year-old with five comorbidities, detailing their journey as they leave the workforce and their health deteriorates. It highlights the rapid rise in their interactions with multiple services over time, revealing several critical inflection points. Early and integrated interventions at these inflection points could potentially prevent further health decline. For example, identifying and upskilling an individual at high risk of digital exclusion could improve their access to health and other government services. Despite numerous services involved, they ultimately find themselves in secondary care with multiple comorbidities, further from the workforce than when they first engaged with employment services.
Citizen Journey 2 (Exhibit 4.2) shows a 24-year-old with a single mental health condition. This example illustrates how even a single health condition, not adequately addressed for the individual, can escalate into more significant problems. For example, a lack of flexible working arrangements can exacerbate health issues and limit the ability to fully engage with health services, representing an important inflection point. While their interactions with multiple services continue to rise, their reasons for ill health and inability to work are multifactorial, necessitating a coordinated approach across services. Providing the right support, from the right team at the right time, could allow effective intervention to alter the trajectory of an individual's journey and return them to full health and the workforce.
Taken together, the journeys illustrate the interconnected nature of employment, housing, transportation, and social support when it comes to those who are long-term sick, economically inactive. Addressing complex issues such as the rise in long-term sick inactive requires a whole-of-government approach, in which various parts of the public sector work together to make timely interventions that improve health outcomes.
We estimate that reducing long-term sick inactivity could boost the UK’s GDP by £109-177 billion and fiscal revenue by £35-57 billion over the next five years.
These estimated benefits stem from two factors:
It is often noted that those who are long-term sick, economically inactive have been part of this group for some time and as such it is hard to reintegrate them into the workforce. However, we believe that the last few years have seen a material change in the type of people becoming long-term sick inactive, partly due to the speed of the rise in this group. Based on ONS data, we identify a low, mid and high case for the number that could be credibly reintegrated into the workforce.
Based on this we estimate that achieving the two aims of reintegration and prevention could unlock approximately £35-57 billion in fiscal funds over the next parliamentary term to 2029. This is a cumulative impact, with gains accelerating as more people are reached by the efforts to reintegrate and maintain in the labour force. By 2029, we estimate the annual impact to reach £19 billion in the mid-case scenario. These gains come primarily from:
If reintegration and prevention are maintained, then the fiscal benefit will continue beyond 2029. In such a scenario, we would see fiscal gains of at least £19 billion (mid-case) every year thereafter.
It could also boost economic output by £109-177 billion over the next five years, subsequently generating an additional £62 billion in GDP annually from 2029 onwards in the mid-case scenario, representing 2% of real GDP. This stems from:
The estimated ‘size of prize' of tackling long-term sick inactivity is significant in any context. However, in the context of a fiscally challenging outlook for the UK, it signifies a genuine opportunity to not only improve population health and the wellbeing of many but also to improve the UK’s fiscal position and help drive economic growth. The estimated benefits also demonstrate a broader lesson – the fiscal and economic benefits of tackling some of the structural economic and health challenges facing the UK are likely to deliver larger benefits than tinkering with fiscal policy. They also highlight that some upfront investment – either in time, money or broader resources – would likely be worthwhile to enable this challenge to be tackled for both health and economic gains.
While the estimated benefits of addressing this issue are clear, our focus now shifts to how it could be tackled. A whole-of-government approach (WGA) has long been recognised as a useful tool with which governments can drive change in complex, wide-ranging issues such as health. However, it is difficult to find a universally successful application of this approach, in the UK or elsewhere. There are plenty of reasons for this – not least, it often makes sense for government or the public sector to operate in well-defined silos.
For WGA to be truly successful, it must traverse silos at both horizontal (within central government) and vertical (across levels of government) levels. This means overcoming a series of institutional and cultural barriers. Drawing from existing literature and insights from a series of expert interviews with senior stakeholders across the policy, healthcare and government space, we have mapped out the most common barriers. Details of these barriers and further context will be included in our full report, but can be summarised in three key themes.
Lack of common purpose: Often there is a lack of common purpose embedded across the public sector, with an absence of long-term vision, senior sponsorship or buy-in for objectives. For complex cross-government issues, there needs to be an accompanying common purpose to provide clarity on the role each part of the public sector is playing and the problems they are trying to solve. Without this, each part will focus on its own local priorities and delivering more immediate impact, as opposed to playing a smaller role in tackling a larger problem. For example, the multitude of departments which can potentially help to improve health outcomes will not do so unless they are given clear directives and shown how important their role is to a wider cross-government objective. There is also often a challenge around continuity. Politicians often move roles before objectives have been reached. A clear and consistent common purpose will help ensure continuity of aims and strategy when this happens.
Poor collaboration: Too often there is little incentive for different parts of the public sector to collaborate on cross-cutting issues. As it stands, one part of the system has little reason to try to solve a problem (or part of a problem) which they see as someone else’s job. Perverse risk and reward systems disincentivise collaboration and mean organisations do not get credit for contributing to cross-cutting aims. For example, currently it is not obvious why one department would spend their budget on improving health outcomes when they see this as an issue for DHSC and NHS, even if they have the ability to drive impact in this space. Similarly, collaboration on smaller, impactful initiatives is also hampered by using a narrow lens to assess the role of each government department in the current system. This prevents quick wins which might combine multiple solutions across departments for greater impact – for example, reducing homelessness through employment as well as housing policy at a local level in response to local needs.
Funding and resourcing silos: The current funding approach is particularly ill-suited to complex problems which span multiple parts of the public sector and often require sustained long-term investment to address. Overall, funding is not dynamic or linked to performance, impact, or strategy. There is very little ability to pivot funding towards specific interventions (even if they might save money in the longer term), to move money between pots of funding according to results, or to redeploy funding locally. Despite this, we also find that often funding is too short-term. For example, in health, there is a resource-intensive funding landscape that favours those able to bid, not those with the highest need. As part of this, there is also a proliferation of small grants that are very specific and short-term, making funding strategic long-term programmes difficult. Poor data gathering and sharing means funding and resources cannot be deployed on need and the effectiveness of interventions is not fully evaluated.
It is clear, therefore, that to drive a new whole-of-government approach across all levels of the public sector, actions should directly address these three themes.
Whoever forms the next government, tackling the rise in long-term sickness and particularly its impact on economic inactivity needs to be a priority. The best way to do this is to drive a whole-of-government approach to invest resources most efficiently and intervene at the right stage.
To ensure that cross-government work on health becomes a long-term success, the new government may need to take action from day one. Early steps can help to ensure the initiative is considered among other competing commitments that are prioritised at the formation of the government. At the same time, setting up whole-of-government collaboration and changing existing ways of working and culture will take considerable time – an earlier start could ensure earlier outcomes.
Below we set out three immediate steps to set up a whole-of-government approach to health. These aim to start resolving three key barriers to cross-government working: lack of common purpose, poor collaboration, and funding and resource silos. Combined, they could create the momentum and underpinning for the new government to introduce further operational solutions and policies over time. In our full report, we will set out a more detailed series of possible follow-up actions which ensure the initiative delivers results over the long term.
The PM needs to define high-level health outcomes to strive for, such as reducing preventable mortality rates and improving quality of life through improved population health. But beneath these headline goals more specific binding outcomes are necessary, such as addressing economic inactivity driven by ill health (other specific outcomes could include reducing health inequality, for example). This could include aiming to reintegrate approximately 0.5 million people who became long-term sick inactive post-pandemic back into the labour force and return the growth rate back towards its long-term trend of around 0%.
Uniquely, it would have a Delivery Unit attached to it, rather than relying solely on siloed department work and evidence. It should have a Permanent Secretary-level senior responsible officer (SRO) to drive the work of the board and the delivery unit across government. This individual would be based in the Cabinet Office and accountable to the PM or Deputy PM, not an individual secretary of state. It would be a senior civil service role but there should be a focus on the skills necessary. It could be advantageous to bring in an experienced external appointment, who might be able to take a fresh approach.
Senior civil servants from each department split their time 50:50 between the Delivery Unit and their own departments. They should be accountable for cross-government delivery and supported with the tools to drive this. This setup ensures they remain embedded within home departments to drive the necessary behaviour change for cross-departmental work, whilst also being accountable to the Delivery Unit Lead. A secretariat sits alongside the delivery unit and supports the work of the board.
Additionally, the establishment of a council of leading experts in areas such as labour force economics and public health, among others, could provide input to both the Delivery Unit and Health Improvement Board. A council such as this could guide policy formation and act as external challengers to governmental actions. It is important that this group has both an inward and outward facing role, so that it can feed into policy development but also retain an independent external voice to hold government to account when needed. Additionally, this could be combined with a shift in accountability mechanisms to focus more on outcomes rather than departments. For example, Select Committees could focus on the cross-government nature of the work of this board and the priorities set by the PM.
Taken together, this setup means that the board would be able to develop its own evidence and analysis while also wielding the tools and power to drive the implementation of the decisions it takes. This is fundamentally different to the usual board setup which relies solely on siloed departmental evidence and then only on individual departments for delivery. This change should be reflected at both the political and official levels of the board. It is important to note that just setting up another cabinet committee in the usual way is unlikely to make much of an impact. A new approach is needed, with an emphasis on cross-government collaboration, accountability and delivery.
Finally, while we will not make specific policy recommendations here, in our full report we will outline broad areas of policy focus for a government to consider when addressing economic inactivity specifically. These include health provision, employment services, employer conditions and benefits provision. In slower time, all this work could underpin the development of a cross-government health improvement strategy to be driven by the new Health Improvement Board.
The UK faces a complex set of health challenges. This is exemplified by the large, sustained and unique rise in people who are long-term sick and economically inactive. Addressing health issues such as these can deliver significant fiscal and economic benefits, but doing so requires a different approach. It means taking a truly whole-of-government approach targeted at better addressing the root causes of illness and finding a more effective point at which to intervene. Whoever forms the next government, it will be vital for them to take quick action on day one to get the ball rolling and seize the opportunity to both improve health outcomes and boost economic growth in the UK.
For impact estimation methodology and additional exhibits, read the accompanying Annex here.
This report would not have been possible without the contributions of the following BCG colleagues: Alex Shipley and Hameed Obileye. The authors would like to thank them for their support and are incredibly grateful for their invaluable work, particularly in analysing the data on which this report is centred.
This report is a joint publication and was produced in partnership with BCG's Centre for Growth and the NHS Confederation.
BCG's Centre for Growth brings together ideas, people and action to drive the UK forward. We work with our global expert network to identify transformational opportunities, connect key decision-makers and build coalitions for change. We offer long term strategic insight, extensive cross-sector expertise, platforms for dialogue and bias to action.
The NHS Confederation is the membership organisation that brings together, supports and speaks for the whole healthcare system in England, Wales and Northern Ireland. The members we represent employ 1.5 million staff, care for more than 1 million patients a day and control £150 billion of public expenditure. We promote collaboration and partnership working as the key to improving population health, delivering high-quality care and reducing health inequalities.
Managing Director & Partner, Global Leader, Health Care Payers, Providers, Systems & Services
London
Deputy Director of Policy, NHS Confederation
Head of International Policy, NHS Confederation
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