People with mental health problems face widespread prejudice and misunderstanding in the workplace, forcing many to hide their illness from employers and colleagues.

The extent of stigma and discrimination is revealed today in a report on employers' attitudes which found that half of business leaders would not hire people with mental health problems because of negative attitudes from co-workers.

Four in 10 managers believe it is a "significant risk" to recruit people with mental health conditions to a job dealing with the public or clients, while nearly one in four are unable to name a single mental illness, the Shaw Trust survey of 500 business leaders found. This widespread ignorance exists despite the fact that one in six Britons are suffering from conditions such as depression, bipolar disorder, panic attacks or anxiety at any given time, according to the charity Mind.

Almost three-quarters of the companies surveyed by the Shaw Trust, a charity that provides employment services for disabled and disadvantaged people, have no formal policy on stress and mental illness.

Being excluded from the workplace means people with mental health problems are more likely to live in poverty, be financially dependent on family and the state, and have low self-esteem, which can all slow down recovery, the report says.

In October, The Independent on Sunday revealed that the costs of mental illness rose by 36 per cent in six years, topping £100bn last year, in England alone. The cost to employers from sick leave and lost productivity is nearly £30bn a year, according to the Centre for Mental Health.

Sally Burton, chief executive of the Shaw Trust, said: "Levels of prejudice and misunderstanding are alarmingly high, yet emotional and practical support remains low or often non-existent."

The new poll, carried out by Trajectory, revealed that one in four companies believe people with mental health problems are less reliable than other employees. The research upon which the report is based also found that 78 per cent of employers think British industry loses talent because it does not know the best way to deal with mental health in the workplace. But Jacki Connor, director of colleague engagement at Sainsbury's supermarket, said many of its store managers find people with mental health issues to be more reliable, and staff absence is lower among people with disabilities.

There are some signs of changing attitudes. About 21 per cent of companies now employ someone with a mental health condition, compared with 11 per cent in the 2006 survey.

After problems with previous employers, Lucy Barratt, 34, of Portsmouth, now works part time in advocacy for Mind. She was diagnosed with bipolar disorder when she was 19 and is supported by her employer.

"I still receive quite intensive treatment on a weekly basis and they [Mind] are brilliant about it. They say your hours are 20 hours and we don't mind when you do it. [Prejudice] would put me off applying for other positions because I would be worried about what they would say, how they would treat me. One employer I worked for knew I had been off and when I came back I heard a colleague say, 'The nutter's back. I hear she's been in the loony bin.' It's quite demeaning.

"You are not allowed to be racist; you can't be sexist or anything else, but it's OK to call people 'nutters'. If I didn't have the support I have now I wouldn't work. It's as simple as that."

Case Study: Damien Smith, 31, from London

Damien Smith was diagnosed with clinical depression last December and with bipolar disorder two weeks ago. He resigned from his middle manager role in education in July after feeling unsupported by his employer.

"I was experiencing mania but at the time I didn't realise I was manic. I was over-functioning on 45 minutes' sleep a night, if that. Everyone loves an achiever. There was basically no task too big for me because I was wired; I had this amazing amount of energy.

"In December, I hit the skids for seven days. I didn't contact my manager, so I was AWOL. When I did get myself together, he was obviously pissed off. I could understand that.