OECD Recommends UK Tax System Overhaul to Reduce Complexity and Support Economic Growth

The Organisation for Economic Co-operation and Development (OECD) released a report recommending that UK Chancellor of the Exchequer Rachel Reeves undertake a comprehensive overhaul of the UK's tax system. The report, published on October 15, 2024, identifies the UK tax system as among the most complex in the OECD's 38 member countries.

It calls for simplification to enhance economic efficiency and support growth.

The OECD's analysis points to the tax system's intricate structure, which includes multiple reliefs, allowances, and varying rates across income, corporate, and inheritance taxes. According to the report, this complexity imposes administrative burdens on businesses and individuals, potentially hindering investment and productivity.

The organization suggests streamlining these elements to make compliance easier and more transparent.

The UK economy has experienced subdued growth in recent years, with GDP expansion averaging below 1% annually since 2019, as reported by official statistics.

The OECD links tax complexity to these trends, noting that it may deter foreign direct investment and complicate fiscal planning. 5% of GDP in the UK. Rachel Reeves, who assumed the role of Chancellor in July 2024 following a Labour Party election victory, faces pressure to deliver on promises of economic renewal.

The OECD's recommendations come amid broader fiscal challenges, including high public debt levels exceeding 100% of GDP and the need to fund public services. The report emphasizes that tax reform should prioritize growth without necessarily increasing overall tax burdens.

The OECD proposes a phased approach to reform, starting with a review of tax expenditures and exemptions that no longer serve their intended purposes.

It also advises aligning UK tax policies more closely with international standards to facilitate cross-border trade. Businesses, particularly small and medium-sized enterprises affected by compliance requirements, stand to benefit from reduced administrative loads. Looking ahead, the UK government has not yet responded officially to the report.

Any overhaul would require legislative changes, potentially through the next budget in spring 2025. Stakeholders, including industry groups and economists, are monitoring developments, as reforms could influence investment decisions and long-term economic trajectories. The report underscores the stakes for the UK economy, where tepid growth has impacted employment and living standards.

Affected parties include taxpayers, corporations, and public sector entities reliant on tax revenues. Next steps may involve consultations with experts and parliamentary debates to shape policy direction.