The Organization for Economic Co-operation and Development (OECD) has warned that “significant action” is needed to stabilize UK public finances, urging Chancellor Rachel Reeves to change monetary policy.
The OECD recommends scrapping stamp duty, reducing the triple lock on pensions, and revising the council tax system.
The report highlights growing financial pressures from health care, pensions, and climate change, on top of massive debt, rising interest payments, and slow economic growth. This follows warnings from other agencies about Britain’s bad debt, with the Office for Budget Responsibility recently predicting that the debt could reach 270% of GDP over the next 50 years.
Reeves, who will present his first budget on October 30, is expected to raise taxes to deal with the government’s £22 billion overspending. The OECD is proposing a review of the triple pension lock, which is currently tied to the highest of 2.5%, inflation, or wage growth, by combining it with inflation and wage growth.
In addition, the OECD calls for an end to stamp duty, saying that it does not encourage movement in the housing market, and urges a review of the current fiscal rules that balance public investment and daily spending, which may limit investment in productivity-enhancing projects. .
Other proposals include unfreezing fuel tax, simplifying income tax, and reducing the amount of interest companies can deduct on their tax debts. The organization also stressed the need for a review of council tax property figures, which are still based on 1991 figures.
UK debt has risen to almost 100% of GDP, exacerbated by the 2008 financial crisis, the pandemic, and rising energy prices. Economists warn that debt becomes unsustainable when interest payments outpace economic growth—a situation 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 Department of Finance acknowledges the challenging financial situation and said “difficult decisions are still ahead” as the chancellor prepares the budget.
