I have been checking out the options available. If I go down the repair route I can either replace the internal gubbins (SG-8R25) for about £150 or replace the whole hub with an improved version (SG-8R36). If I do the latter then I have to rebuild the wheel.
It appears that a slipping 5th gear is often the start of terminal decline, which lead to gears 5 - 8 not working then followed by lots of drag and total unit failure.
These units are not maintenance free. To keep the working they need dipping in some incredibly expensive special Shimano oil every year or so. There is an issue with water getting in on the right hand side and poor bearings on the earlier models.
I notice that
Halfords and Edinburgh Bike Coop no longer do low end (< £500) hub geared bikes. It appears that they just aren't worth it.
The most sensible option for me would be to take it down to the council dump before I spend too much money on a bike that isn't worth it.