OECD says era of low taxes is over as UK braces for potential fresh hikes
Paris-based organisation finds global reversal of pandemic-era tax relief; UK measures and rumours of further rises raise alarm among businesses and economists
The era of falling tax burdens is over, the Paris-based Organisation for Economic Cooperation and Development said, warning that governments worldwide have moved from pandemic-era tax relief to a mix of tax increases and narrower relief measures.
In a report published this week, the OECD said the shift, which began about two years ago, has now solidified as countries confront high public debt and new spending demands related to climate change, ageing populations and, in some cases, increased defence costs. "High levels of debt coupled with significant emerging spending needs relating to climate change, ageing and, in some countries, increased defence spending, has meant that jurisdictions of all income levels have adopted strategies to mobilise more revenues," the report said.
The OECD's warning comes as speculation grows that the UK Labour government may pursue further tax rises to close a projected fiscal shortfall. The government has already introduced a series of tax measures in recent months, including changes to capital gains tax, an increase in employer national insurance, reforms to inheritance tax and a rise in VAT on private schools. Officials and analysts have said the last Budget measures amounted to roughly £40 billion of additional revenue.
Ministers and Labour figures say some of those measures do not breach the party's pre-election pledge not to raise taxes on "working people," a commitment defined by the party to exclude increases to income tax, national insurance and VAT on pay. Ministers have argued that the employer national insurance rise — a measure projected to raise about £25 billion — does not directly affect workers' take-home pay. Critics counter that the employer levy increases labour costs and has been widely blamed for contributing to higher unemployment.
The size of the shortfall facing the Treasury remains a matter of debate. Government sources and commentators have put the potential gap at as much as £50 billion, prompting speculation that further changes could target pensions, stamp duty, rental income, bank profits and possibly a further freeze in income tax thresholds.
Business groups and some economists have urged caution. Rain Newton-Smith, chief executive of the Confederation of British Industry, wrote that the "time for tinkering is over" and warned against "slavish adherence" to pre-election pledges that could constrain pragmatic fiscal choices. Some in the corporate sector have argued that shifting further tax burdens onto business could damage growth and called on ministers to consider altering personal tax pledges rather than imposing more levies on firms.
Financial institutions and advisers have also weighed in. Economists at Goldman Sachs told clients that historically "spending-based fiscal consolidations usually improve deficits more sustainably than tax-based adjustments," but added that the political difficulty of delivering spending cuts — highlighted by Labour's recent U-turn on welfare reform — makes sizeable tax rises more likely in their view.
The OECD's analysis shows the trend is not unique to the United Kingdom. Across its 38 member countries, the organisation identified a broad move toward revenue mobilisation through a combination of tax increases and more targeted relief measures. The report framed the shift as a response to competing fiscal pressures: pandemic-related borrowing, infrastructure and green-transition spending, demographic pressures on pensions and health systems, and in some nations, heightened defence commitments.
Markets and firms will be watching closely for the next UK fiscal announcements. Any indication that the government plans further personal tax increases or additional levies on businesses could affect investment decisions, hiring plans and market sentiment, according to analysts. Business lobbyists are expected to press for clarity and for measures that support growth, while public finances watchers will focus on whether the government opts for revenue rises, spending restraint, or a mix of both to restore fiscal headroom.
The OECD report and reactions from UK business groups and financial firms underline the broader policy dilemma facing advanced economies: balancing the need to stabilise public finances with priorities for growth, social services and long-term investments in climate and security. As governments map out medium-term plans, the organisation said the era of broad tax relief has given way to more selective approaches to revenue and spending.
