OECD tells Reeves to reform ‘inefficient’ UK tax system
Top economists have urged Chancellor Rachel Reeves to launch a sweeping review of the UK tax system in order to improve growth prospects and boost investment.
Researchers at the OECD – Organisation for Economic Co-operation and Development for long –said the UK economy suffered from distortions in its tax system as well as loopholes exploited by businesses.
A new report has called on Reeves to launch an “in-depth tax review to make the tax system more efficient and growth-friendly”.
The main recommendation provided was to broaden the VAT base, which would end the debate on whether Jaffa Cakes are biscuits or cakes.
It said any extra receipts could be used to compensate low-income households through “targeted transfers”.
Economists said current reliefs on certain products as well as medical equipment were “largely inefficient and regressive” while property tax was “based on outdated valuations”. The comment refers to council tax bands that are currently based on property values from 1991 and have never been touched again due to the risks of sparking political rebellions.
Critics of the tax system have also previously highlighted the issues with the £100,000-125,000 tax trap, income from student loan repayments and stamp duty issues.
The government previously had an arms-length body called the Office of Tax Simplification that was tasked with finding solutions to remove administrative burdens for taxpayers.
The body lasted just 13 years until former Chancellor Kwasi Kwarteng shut the operation down. The previous government frequently ignored several recommendations it made.
Tax system irks businesses and families
The HMRC tax code has long been the bane of accountants, small businesses, entrepreneurs and other taxpayers for its complexities.
Several think tanks, including the Institute for Government, called on the Chancellor to make broad tax changes ahead of last year’s Budget when she looked to fill a fiscal hole worth billions of pounds.
The Chancellor could face similar challenges later this year as the Iran war hampers growth and higher interest rates keeps borrowing costs elevated.
The OECD also criticised the government for conflicts of interest in dealings with business, which may touch on Labour’s recent scandals around Lord Mandelson and Labour Together as well as former MPs’ moves into the private sector that have raised eyebrows.
The Paris-based think tank’s report said legally-binding commitments to introduce liability for violations should be extended to post-public activities and during politicians’ term of appointment.
Other recommendations included reducing subsidies for employee training under a training levy, with the cash instead being channeled towards support for young people.
A Treasury spokesperson said: “We are already reforming the tax system to make it more efficient, modern and fair.
“The government is tackling reliefs that are now costing far more than intended and are disproportionately benefitting the wealthy.”