The OECD called for Rachel Reeves to target tax loopholes and highlighted council tax rises as a way to raise revenue, as it cut UK growth forecasts today.
It said Britain should re-evaluate council tax bands, which could see households hit with bigger bills, particularly those living in larger homes, or expensive parts of the country, such as the South East.
The Organisation for Economic Cooperation and Development said UK growth would edge down from an earlier forecast of 1.4 per cent to just 1.3 per cent this year.
Its economists added that growth next year would be just 1 per cent – a drop on the 1.2 per cent they had previously forecast.
Homeowners and renters in larger properties could be hit with bigger council tax bills, if Rachel Reeves follows the OECD’s advice
The OECD’s gloomy outlook painted a picture of UK growth continuing to be below par
Economists have warned that Reeves may have to raise taxes in her next Budget if the UK’s finances do not improve.
But after promising not to raise income tax, national insurance, or VAT, the Chancellor is in a tricky position.
The OECD said: ‘A balanced approach should combine targeted spending cuts, including closing tax loopholes; revenue-raising measures such as re‑evaluating council tax bands based on updated property values; and the removal of distortions in the tax system.’
The council tax system needs urgent reform to kickstart growth in the UK, according to UK think tank the Institute for Fiscal Studies.
When council tax was launched in 1991, every property in England and Wales was valued and put in one of eight bands. The bands are still used today, despite the average house price increasing by more than 400 per cent.
A move to re-evaluate bands is likely to lead to those in larger homes or more expensive areas being hit with bigger bills, as a way to raise revenue. Successive governments have dodged a revaluation due to the potential for a major backlash.
Budget bad news: Rachel Reeves may have to raise taxes again in autumn
Yesterday, analysts at Deutsche Bank said they expected ‘upwards of £10billion in tax rises to be announced in the autumn Budget’
The OECD said inflation was likely to remain stubborn and may lead the Bank of England to keep interest rates higher for longer.
It forecasts that rates will fall by a further 0.75 percentage points in this cycle but not reach that level for a year.
The report said: ‘Bank Rate is projected to be lowered gradually from its current value of 4.25 per cent and reach a terminal value of 3.5 per cent in the second quarter of 2026, as inflation continues to converge towards target and growth slows below potential.’
Figures yesterday showed Britain’s manufacturing industry continued to shrink in May, although the rate of contraction improved.
The closely watched S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) gave a reading of 46.4 for May.
S&P Global said the British manufacturing industry was affected by a mix of subdued global demand, volatile trading conditions, and rising cost pressures, which hit output, new orders, new export business, and employment.
Manufacturing production shrank for the seventh consecutive month amidst reduced new work volumes from both domestic and overseas clients.
At the same time, new business fell for the eighth successive month due to a ‘general reluctance among clients to commit to new contracts’.
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