The OECD has warned that “significant action” is needed to stabilise the UK’s public finances, and urged Chancellor Rachel Reeves to reform fiscal policy.
The OECD recommends abolishing stamp duty, reducing the triple pension lock and modernising the council tax system.
The report highlights the growing financial pressures from healthcare, pensions and climate change, which come on top of rising debt, rising interest payments and slowing economic growth. It follows warnings from other institutions about the UK’s unsustainable debt, with the Office for Budget Responsibility recently forecasting debt to reach 270% of GDP over the next 50 years.
Reeves, who is due to deliver her first budget on October 30, is expected to raise taxes to tackle £22bn of excess government spending. The OECD is proposing to review the triple lock on pensions, currently linked to the highest rate of inflation or wage growth of 2.5%, by aligning it with the average of inflation and wage growth.
Furthermore, the OECD calls for the abolition of the stamp duty, arguing that it discourages mobility in the housing market, and urges a re-evaluation of current fiscal rules that equate public investment with everyday spending, which could limit investment in productivity-boosting projects.
Other proposals include scrapping fuel duty, simplifying income tax and reducing the amount of interest that businesses can deduct from their tax bills. The organisation also stressed the need to update property valuations for council tax, which are still based on 1991 figures.
The UK’s debt has soared to nearly 100% of GDP, exacerbated by the 2008 financial crisis, the pandemic and high energy prices. Economists warn that debt becomes unsustainable when interest payments outpace economic growth – a scenario the UK now faces. About 9p in every pound of government spending will go to debt interest payments over the next five years.
The Treasury acknowledged the difficult financial environment and said “difficult decisions lie ahead” as the Chancellor prepares for the Budget.