OECD Calls for Smarter UK Tax Reform to Support Long-Term Economic Growth
The OECD has urged the United Kingdom to focus on improving the efficiency of its tax system rather than relying solely on higher taxation, arguing that smarter tax policy will be essential to strengthen productivity, improve living standards and maintain sustainable public finances.
The recommendations are contained in the OECD Economic Survey of the United Kingdom 2026, which concludes that structural reforms—including tax reform—will be critical as the country navigates slower economic growth, persistent fiscal pressures and weak productivity.
Growth Outlook Remains Modest
According to the OECD, UK economic growth is expected to moderate to 0.9% in 2026, following growth of 1.4% in 2025, before recovering slightly to 1.1% in 2027. Inflation is forecast to rise to 3.7% in 2026 before easing to 2.4% in 2027.
The report identifies several long-term challenges affecting economic performance, including:
- Weak productivity growth;
- High and volatile energy prices;
- Increasing fiscal pressures; and
- Significant regional economic disparities.
OECD Recommends More Efficient Taxation
The OECD argues that tax reform should focus on creating a more efficient and less distortive tax system capable of supporting investment and economic growth while preserving fiscal sustainability.
Key tax recommendations include:
- Broadening the VAT base by gradually reducing exemptions while protecting lower-income households through targeted support measures.
- Eliminating inefficient tax reliefs and tax expenditures that no longer deliver their intended policy objectives.
- Simplifying the tax system to reduce compliance costs for businesses and taxpayers.
- Regularly reviewing tax expenditures to ensure they continue to provide value for money.
- Modernising the UK’s property tax framework, which continues to rely on outdated property valuations.
- Addressing distortions within both personal and corporate taxation that discourage employment, investment and productivity.
Fiscal Discipline and Investment
The OECD also recommends maintaining fiscal discipline while reallocating government spending towards productivity-enhancing public investment.
According to the report, improving tax system efficiency and reducing ineffective tax expenditures would help rebuild fiscal buffers while creating greater capacity to invest in infrastructure, skills and innovation.
Broader Structural Reform Agenda
Beyond taxation, the report highlights the importance of reducing regional productivity gaps, strengthening local government capacity, improving transport connectivity and accelerating investment in energy infrastructure.
The OECD also encourages reforms that strengthen energy security, improve electricity networks and support the UK’s transition towards a more resilient and lower-carbon economy.
Tax Policy as a Driver of Growth
The report reinforces a broader trend emerging across many OECD economies: tax policy is increasingly expected to support economic competitiveness alongside revenue collection.
Rather than focusing exclusively on higher tax rates, policymakers are encouraged to broaden tax bases, simplify legislation, remove inefficient reliefs and create a more neutral tax system that encourages investment and long-term productivity growth.
As governments continue to balance fiscal sustainability with economic competitiveness, the OECD’s recommendations provide an important reference point for future UK tax policy discussions.