Impact of Covid on the UK's Economy and Health Service
A review highlighting the impact of Covid on the economy and health service in the UK and other comparable countries.
Introduction
The number of people that are economically inactive increased when Covid arrived and, unlike many other countries, has yet to return to pre-Covid levels. The first part of this article examines the impact of Covid on economic activity in the UK workforce with a particular focus on long-term sickness. This is followed by how Covid impacted the health system in the UK compared to other countries. It shows how low investment led to a lack of resilience in the UK’s health system making it more difficult to recover from the shock of Covid as well as other countries managed to do.
Economic Inactivity
Economic inactivity in the UK workforce was falling prior to the Covid pandemic and by March 2020 was 8.6 million people. This was the lowest number since 2000 and, as the workforce had grown, was a much lower percentage of those employed.
However, the following chart shows that the number of people economically inactive started to rise when Covid hit and remains well above the pre-Covid trend.
International comparisons for economic inactivity show that the UK is an outlier compared to other comparable countries. The following chart shows the percentage change in economic inactivity between 2019 and 2022 for the G7 countries.
Overall workforce economic inactivity fell across the G7 countries in the years prior to the onset of the pandemic and the UK consistently had one of the lowest inactivity rates. However, since the pandemic the chart shows that UK economic inactivity has risen significantly more than any other G7 nation.
The next chart provides more detail on what is happening with economic activity in the UK. It shows the percent of each age group that is economically inactive over time.
Between 2000 and 2020 there was decreased economic inactivity by those aged 50–64 years, especially women, helped by flexible working and rising retirement ages. This decrease more than off-set the increased inactivity in those aged 18-24 years and was the main reason that overall economic activity fell during that decade.
However, when Covid hit the economic inactivity for the 50-64 year olds started to increase. This change is the main reason for the increase in overall economic inactivity and why we have not yet returned to pre-Covid levels.
Recently the ONS reported1 on the reasons for the increase in inactivity for those aged 50-64 years since Covid and concluded that …
Being sick, injured or disabled continues to be the main reason why people aged 50 to 64 years are economically inactive in the labour market, this was the main reason given by 42.3% of older inactive adults
The next section looks at the economic cost of ill-health and the impact of long-term sickness on economic inactivity.
Health and the Economic Engine
The link between a healthy population and a healthy economy is well documented but often understated. In his 2022 REAL Challenge annual lecture2 for the Health Foundation, Andy Haldane used the metaphor of an engine to describe the relationship when he said that …
Economic growth is a two-cylinder engine, where the cylinders are workforce activity and workforce productivity.
The key point is that health affects both growth cylinders. If chronic ill health results in people dropping out of the workforce, then it will shrink directly the supply of labour and hence the economy’s potential to grow – the first cylinder.
But even if unwell people remain in the workforce, they are likely to produce less, including due to absences, reducing their productivity – the second cylinder.
A hit to health, then, is likely to lower both activity and productivity and, with it, the twin drivers of economic growth.
The most dramatic illustration of people dropping out of the workforce is illustrated in the following graph that shows the number of people economically inactive due to long-term sickness which reached a record high of 2.8 million at the end of 2023.
The next chart shows that since the pandemic the percent of economic inactivity due to long-term sickness in the UK has grown faster than any other reason. It is now the largest single cause of economic inactivity.
The economic costs of economic inactivity due to long-term sickness are high. A recent study3 to support the launch of The Times Health Commission estimated the economic costs of ill health among the UK working-age population. The estimates were based on the most up-to-date data available and followed an approach carried out by the Department for Work and Pensions and the Department of Health to support the 2016 Work, Health and Disability Green Paper.
The study estimated that the costs to the economy are around £148 billion per year which is equivalent to 7% of GDP. The breakdown of the costs are summarised in the following graphic.
The majority of the cost (£115 billion) is through economic inactivity from lost output due to working-age people with health conditions not being in paid work. The other economic costs arise from lost output due to sickness absence and working age carers caring for sick people of working age.
The causes of economic activity in the workforce are complex and are explored in more detail in the 2022 REAL Challenge annual lecture for the Health Foundation.
The most plausible explanation for the recent significant rise given in the lecture is that we are seeing the consequences of longstanding rises in levels of long-term sickness before the pandemic, compounded by the effects of Covid.
In addition, the lecture argues that Covid has been a tipping point for the UK’s health care system leading to a significant decline in performance. Given that, unlike many other countries, the UK has yet to return to pre-Covid levels of economic inactivity it’s worthwhile comparing the impact of Covid on the UK’s health system with comparable countries.
The Impact of Covid on Health Care
No country’s healthcare system was able to avoid disruption from Covid entirely, but the UK’s pre-pandemic struggles, and the disruption from the pandemic itself means it has taken longer for health services to recover in the UK.
Prior to the pandemic investment in the UK health service had been at the lower end of comparable countries for a number of years. By 2020 the UK was operating with materially fewer doctors and beds per head of population than most comparable countries. This would make it less resilient to a major shock like a pandemic.
This lower level of investment in health care can be seen on the following interactive chart which compares the number of hospital beds and doctors per 1,000 people for the UK against some comparator countries. Note that the lines drawn for the quadrants are the average number of doctors and beds per 1000 people for the countries shown.
The chart shows that by 2020 the UK had the lowest number of doctors per 1,000 people and the second lowest number of beds per 1,000 people. In addition, the UK had a hospital bed occupancy rate of just over 90%. Far above the optimum occupancy rate of 85% and much higher than the average of 73% seen in the other countries.
The story is the same for diagnostic equipment where the UK has lower numbers of CT and MRI Scanners. The next chart compares the number of scanners per million people for the UK with other countries.
With little spare capacity in the NHS, it was inevitable that elective care services would be more disrupted in the UK compared to other countries - an impact worsened by demand initially falling as people stayed away from hospitals.
Analysis of data by the Kings Fund4 shows this disruption clearly. The following chart shows the percentage decrease in operations undertaken between 2019 and 2020.
It’s clear to see that the UK’s health service was less resilient when compared to other countries as it showed the largest drop in the number of operation completed. For example, between 2019 and 2020 there was a 68% drop in knee replacements and a 46% fall in hip replacements whereas the EU average was 24% and 14%, respectively.
In Conclusion
Since Covid the number of working age people in the UK that are economically inactive has increased and has not yet returned to pre-Covid levels. Amongst the G7 countries the UK had largest increase in economic inactivity due to Covid.
The rise in economic inactivity is mainly due to an increase in the number of people aged 50-64 years and the single largest reason they give for inactivity is poor health.
The number of people economically inactive due to long-term sickness is at a record high of 2.8 million in the UK.
Lower levels of investment in health ahead of the pandemic meant that the UK had a less resilient health care system compared to other countries, Consequently fewer operations were carried out when Covid hit.
In summary, investment in health makes good economic sense.
I wonder to what extent long Covid is a specific factor in increased - and possibly increasing - rates of economic inactivity?
Thanks Bob, I’ll check that out. Anecdotally, I’m hearing of more people developing long covid up to two years after infection and of course repeated reinfections can exacerbate the condition. For that reason, I’m baffled as to why better ventilation isn’t mandated in schools, health settings and other public buildings: I’m especially concerned for the long term health of my grandchildren.