The OECD warns the UK about urgent actions necessary to stabilise its public finances, signalling reforms in taxation and spending.
- The proposed changes include abolishing stamp duty and adjusting the pension triple lock to manage rising fiscal pressures.
- Rising costs in health, pensions, and climate change intensify the UK’s financial challenges, contributing to escalating borrowing costs.
- Projected UK debt could reach 270% of GDP within 50 years, stressing the need for immediate fiscal measures.
- Upcoming budget planning by Reeves will address overspending, with potential tax increases on the horizon.
The Organisation for Economic Co-operation and Development (OECD) has issued a stark warning to the UK regarding its public financial stability. Urging significant reforms, the OECD has recommended abolishing stamp duty and modifying the pension triple lock. These measures aim to address the country’s mounting fiscal pressures, exacerbated by rising health, pension, and climate change costs.
Currently, UK public debt presents significant concerns for the government. Adding to existing worries of high debt and sluggish economic growth are increasing borrowing costs, projected to surge to 270% of GDP within half a century. These figures highlight the necessity for immediate financial reform.
Facing a fiscal climate with mounting debts, the upcoming budget on October 30 features prominently in discussions. Rachel Reeves is expected to tackle around £22 billion of excess government spending, possibly through tax increases, according to the forecast.
Among the OECD’s key recommendations is the scaling back of the costly pension triple lock. Instead of increasing pensions by 2.5%, inflation, or pay growth, the proposed system would tie rises to an average of inflation and wage growth. The International Monetary Fund has echoed similar sentiments, suggesting lessening the pension triple lock’s generosity to help manage spending effectively.
The report also highlighted the need for a fairer, more efficient tax system to stabilise public debt in the long run. This includes increasing public investment by adjusting fiscal rules that currently treat public and current spending equally, often resulting in limited funding for projects aimed at enhancing productivity.
Property tax revisions are also on the table; stamp duty on property sales should be eliminated, as it impedes mobility and affects the housing market. Moreover, updating property valuations for council tax, which are still based on 1991 figures, is recommended. The OECD also advised simplifying the income tax system and limiting corporate interest expense deductions from taxes.
Recently, the UK’s public debt has swelled to nearly 100% of GDP, driven by economic shocks, such as the 2008 financial crisis and the COVID-19 pandemic. With debt interest costs set to consume a growing portion of public finances, urgent measures are crucial to avert unsustainable financial scenarios.
In response, the Treasury emphasised that difficult decisions lie ahead concerning spending, welfare, and taxation to rectify economic foundations and manage the inherited £22 billion deficit.
The call for significant fiscal reform by the OECD highlights the urgent need for the UK to address its public financial challenges.
