Businesses are woefully ill-equipped to deal with increasing mental health issues in the workplace, a new study has found.

More than half of business leaders have been approached by staff with mental health issues but just 14 per cent of companies have a formal policy in place to deal with the problem, according to a survey by the Institute of Directors. One in five large company directors didn’t even know whether they had a policy at all.

The number of days taken off work with mental health problems increased 25 per cent year on year according to the latest Office for National Statistics. Stress, depression and anxiety taken together are now the largest reason for workplace absence, the IoD found.

The report comes days after Conservative MP George Freeman, head of the Number 10 policy unit, suggested that people “taking pills at home, who suffer from anxiety” should not be entitled to disability benefits as such payments should be reserved for “really disabled people”.

The IoD report said mental health is not just a moral issue, but a business issue that could cost the UK as much as 4.5 per cent in GDP through lost working hours, productivity losses, higher benefit payments and the increased cost to the NHS.

It said 127 million hours of work were lost in 2015 due to mental health-related absence - the equivalent of around 75,000 individuals losing the entire working year.

Over 70 per cent of people think Britain has become a less happy place than it was just a year ago, the report said.

While the reasons for the sharp rise are hard to definitively prove, the report suggested a number of factors have combined, including people living increasingly isolated lives, the rise in social media use, recent political turmoil and an “always-on culture” that means the stresses of work are hard to escape.

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To combat the problem, the IoD recommended business leaders should implement formal mental health and well-being policies and give non-executive directors the specific responsibility to ensure mental health is monitored across organisations.

Government should trial a training scheme for small businesses to develop policies around mental health and ensure that the issue is no longer taboo, the body recommended.

There is some evidence that companies are taking on board such advice.

Mark Atkinson is health and safety manager for Clugston, one of the largest private engineering contractors in the UK. The industry has traditionally been more reluctant than others to take have conversations about stress, he said, but it now puts the issue on an equal footing with physical health and safety.