The Organisation for Economic Co-operation and Development (OECD) has warned that “significant action” is required to stabilise the UK’s public finances, urging Chancellor Rachel Reeves to reform fiscal policy.
The OECD recommends scrapping stamp duty, scaling back the pension triple lock, and updating the council tax system.
The report highlights mounting financial pressures from healthcare, pensions, and climate change, which come on top of high debt, rising interest payments, and sluggish economic growth. It follows warnings from other institutions about Britain’s unsustainable debt, with the Office for Budget Responsibility recently forecasting that debt could reach 270% of GDP over the next 50 years.
Reeves, set to present her first budget on 30 October, is expected to increase taxes to tackle £22 billion in government overspending. The OECD suggests revising the pension triple lock, currently tied to the highest of 2.5%, inflation, or wage growth, by aligning it with an average of inflation and wage growth.
Additionally, the OECD calls for the abolition of stamp duty, claiming it discourages mobility in the housing market, and urges a reassessment of the current fiscal rules that equate public investment with day-to-day spending, potentially limiting investment in productivity-enhancing projects.
Other proposals include unfreezing fuel duty, simplifying income tax, and reducing the amount of interest that companies can deduct from their tax bills. The organisation also emphasised the need for updated 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 rising energy prices. Economists caution that debt becomes unsustainable when interest payments outpace economic growth—a scenario now facing the UK. Around 9p in every £1 of government spending will be allocated to debt interest payments over the next five years.
The Treasury acknowledges the challenging fiscal environment and said that “difficult decisions lie ahead” as the chancellor prepares for the budget.
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‘Significant action’ needed to stabilise UK finances, warns OECD