Reversing Britain's post-pandemic worker crisis would boost the economy by £23bn and hand the Exchequer an extra £8bn in tax, new research has revealed, as Kwasi Kwarteng seeks to get more people back to work.

The Learning & Work Institute estimates that tackling the slump in the size of the workforce and improving on pre-Covid employment rates would boost average household incomes by £830 per year as businesses are crippled by worker shortages.

The workforce has failed to recover to pre-pandemic levels after an exodus caused by early retirement and long-term sickness, as the NHS struggles to battle record backlogs. The employment rate has slumped 1.1 percentage points to 75.4pc since the pandemic erupted, causing a scramble to find staff.

L&W said increasing the rate above pre-pandemic levels to 80pc by 2035, equivalent to an extra 1.7m people joining the workforce, would deliver a £23bn boost to the economy.

The Exchequer would benefit from an extra £8bn in tax revenue from National Insurance and income taxes. It estimates that annual incomes for the poorest households would climb by £2,000.

Stephen Evans, chief executive at the Learning and Work Institute, said: “Increasing the number of people in work can contribute to the new Prime Minister’s goal of growing the economy.

“But only one in ten out-of-work disabled people and over 50s getting help to find work now, so there’s huge potential for rapid change.”

The jobs market has been hobbled by a growing number of Britons dropping out of the workforce altogether.

The number of economically inactive Britons – those not in work or seeking work - has jumped by 642,000 since the pandemic started. Vacancies have risen above the number of unemployed people for the first time ever.

The Chancellor announced new measures to boost the workforce in his mini-Budget on Friday.

Mr Kwarteng pledged to reduce benefits for people who “don’t fulfil their job search commitments” and threatened 120,000 with Universal Credit cuts unless they seek more and better paid work. He also pledged extra work coach support for people over 50s, after many left the labour market for early retirement.

Mr Evans said that “not acting would be a false economy”.

He added: “We need to see significant investment in joining up health and work support and finding new ways to link up employers with those wanting a job. To do it right, this could cost up to an extra £1bn per year to deliver but would ultimately save taxpayers money, grow our economy and help people and employers.”