The number of sick and disabled people out of work is putting the UK at risk of an “economic inactivity crisis” that threatens the country’s prosperity, according to a new report.

There were 800,000 more people out of work now than in 2019 due to health conditions, costing employers £85bn a year, according to the review by former John Lewis boss Sir Charlie Mayfield.

The problem could worsen without intervention, but Sir Charlie, who will lead a taskforce aimed at helping people return to work, said this was “not inevitable”.

The move has been broadly welcomed, but some business groups said Labour’s Employment Rights Bill included some disincentives to hiring people with existing illnesses.

One in five working age people were out of work, and not seeking work, according to the report, which was commissioned by the Department for Work and Pensions but produced independently.

Without intervention, another 600,000 people could leave work due to health reasons by the end of the decade.

Sir Charlie said sickness cost employers £85bn a year through issues including lost productivity and sick pay, but it also cost the broader economy.

“Work is generally good for health and health is good for work,” he told BBC Breakfast.

He added that the rise in sickness was being driven by a “surge” in mental health issues among young people and muscular skeletal issues, aches and joint pain in older people that was leading them to leave work.

“For employers, sickness and staff turnover bring disruption, cost and lost experience,” he said. “For the country, it means weaker growth, higher welfare spending and greater pressure on the NHS.”

Illness-related inactivity costs the UK economy £212bn annually, by some estimates, or nearly 70% of income tax, through lost output, increased welfare payments and additional burdens on the NHS.

The independent Office for Budget Responsibility has forecast that the bill for health and disability benefits for working age people alone is set to rise to about £72.3bn in 2029-30.

People could be encouraged to stay in work if health is viewed as “a shared responsibility between employers, employees and health services”, he said.

Sir Charlie added his taskforce would work with GPs who say they find it difficult to judge whether or not a person is suitable to work while they are ill, but are asked to issue sick notes by patients.

The report comes as the government tries to move ahead with its Employment Rights Bill – which some businesses say will stifle growth.

The proposed new law includes a right to guaranteed hours and cracks down on zero-hour contracts without the offer of work.

Retailers understand the importance of supportive workplaces, chief executive of the British Retail Consortium Helen Dickinson said, adding that many already invest in programmes to support workers with ill health or disabilities.

However, she said the government’s goals and its policies, such as the Workers Rights Bill, were “at odds with one another”.

“While encouraging employers to invest in workforce health and provide flexibility, they risk making it more difficult,” she said.

“In its current form, the Employment Rights Bill would make it harder for retailers to continue offering as many crucial flexible roles.”

Chancellor Rachel Reeves is also aiming to guarantee paid work to young people who have been out of a job for 18 months.

Those who do not take up the offer could face being stripped of their benefits.

Loz Sandom has mental and physical health conditions which has made it difficult to find a job, and the last time they worked was a year ago.

“I am willing to do the work, and I want to. I want to find a job,” said the 28-year-old, who has a degree in illustration and has previously worked as a digital marketing executive.

With support from the charity Scope, Loz is looking for an employer willing to accommodate the adjustments they would need in a workplace.

Loz said that part of the challenge was employers did not realise they had “a duty to provide reasonable adjustments”.

“It’s such a shame because they’re missing out on so many fantastic disabled people that can do fabulous jobs.

“And I’m not blaming employers entirely. They need support as well,” Loz added. “There are things that can be put in place to help employers, help save people.”

Responding to the report, the government announced a major partnership with over 60 companies, many of them large employers, to “tackle the rising tide of ill-health that is pushing people out of work”.

The companies include Tesco, Google UK, Nando’s and John Lewis.

Over the next three years, they will “develop and refine workplace health approaches” which aim to “reduce sickness absence, improve return-to-work rates, and increase disability employment rate”.

The government is aiming to develop these changes into a voluntary certified standard by 2029.

Speaking to the BBC, Work and Pensions Secretary Pat McFadden said the report was a “win-win for employees and employers because it’s aimed at keeping people with sickness issues or developing disability issues in work”.

“That’s in the interests of employers because these are good experienced staff and it’s in the interests of employees too because most people want to stay in work if they possibly can.”

The Resolution Foundation think tank’s chief executive Ruth Curtice said: “The review has accurately identified a culture of fear, a dearth of support and structural barriers to work as key challenges to overcome in turning the tide for Britain’s economic inactivity problem – which is currently trending in the wrong direction.”

The CIPD, which represents HR professionals, welcomed the government’s vision for a preventative approach to illness in the workplace.

But its chief executive Peter Cheese said: “The report’s success will depend on the extent to which these recommendations are understood by business in driving positive outcomes and backed by policy makers at a national and regional level.”

Dr Roman Raczka, president of the British Psychological Society, welcomed a shift towards “rehumanising the workplace” but noted that “not everyone will be clinically well enough to be considering a return to employment”.

“While being in employment can improve a person’s mental health and wellbeing in certain circumstances, it is vital that we should adopt a thoughtful approach to those too sick to work.

“The workplace itself can be a root cause of poor mental health.

“Those signed off with sickness, deserve timely access to safe and compassionate care, with support from psychologically informed mental health professionals.”

With additional reporting from Erica Witherington