Foundations for Growth and Competitiveness 2026

United Kingdom

GDP per capita growth in the United Kingdom has been sluggish in recent years, mainly due to weak productivity gains. Capital deepening has been modest, with business investment remaining below pre-Brexit levels, limiting growth in capital per worker. Total factor productivity (TFP) growth has also been subdued. Labour utilisation, especially hours worked per capita, has stagnated amid rising inactivity rates.

Labour mobility and participation need improvement. Although women’s labour participation is above the OECD average, it still lags significantly behind men’s, and it frequently concerns part-time employment. Enhancing skills and human capital, especially to support school-to-work transitions, is crucial. Additionally, the tax system could be made more efficient by reducing unnecessary complexities.

Economic performance

Gaps to the average of the upper half of OECD countries

Source: Panel A: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases; Panel D: OECD, Economic Outlook and Annual National accounts, GFCF by assets databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Human capital: Strengthen the youth upskilling support

Too many young people in the United Kingdom leave education with insufficient basic skills, highlighting the need to strengthen school-to-work transitions. Employers often use subsidised apprenticeships to upskill existing staff rather than train young, low-skilled individuals or early school leavers. Meanwhile, performance among 15-year-olds has been declining, with significant disparities between schools and across socio-economic groups.

Recommendations

✓ Reduce subsidy rates for current employees under the Apprenticeship Levy scheme and channel support to young people.

✓ Target resources to support the highest quality teaching in schools in the most deprived areas.

Labour market: Improve female labour force participation

Women make up a disproportionate share of the economically inactive, largely due to family and caring responsibilities. Limited access to affordable childcare raises the opportunity cost of employment, restricting women’s participation in the labour market. While childcare reform is underway, staff shortages and insufficient contingency planning pose risks to its successful implementation.

Recommendations

✓ Set and monitor interim implementation milestones for the ongoing extension of childcare support for working parents, prioritise low-income households if supply falls short of demand, and extend full childcare support to active job seekers.

✓ Review childcare funding rates regularly to strike a balance between limiting fiscal costs and ensuring quality access

Taxation: Reduce distortions and close loopholes

There is scope to improve the efficiency and fairness of the UK tax system. Parts of the tax system are complex, leading to large compliance costs. As a result, tax compliance has decreased, especially for smaller businesses with less capacities to navigate the system. VAT reliefs are largely inefficient and regressive and property tax is based on outdated valuations. Furthermore, distortions such as kinks in the income tax schedule weaken work incentives, and the deductibility of net interest payments against corporate income makes unprofitable investments viable.

Recommendations

✓ Conduct an in-depth tax review to make the tax system more efficient and growth-friendly by reducing distortions, closing loopholes, and ending reliefs and exemptions that do not serve economic or social objectives.

✓ Broaden the VAT base by phasing out exemptions and compensate low-income households through targeted transfers.

✓ Regularly conduct tax expenditure reviews.

Physical infrastructure: Improve infrastructure governance

The infrastructure governance system is solid in delivery and operations but would benefit from stronger, longer-term planning, and improved coherence across all governance dimensions. Especially, its external control and oversight within a whole-of-government approach could help to better manage threats to integrity in infrastructure projects.

Recommendation

✓ Establish a comprehensive external oversight framework with clear mandates for independent evaluation and parliamentary scrutiny of infrastructure projects.

Public governance: Improve conflict-of-interest legislation

The UK’s regulatory safeguards on conflict-of-interest prevention could be strengthened. Ministers are not legally required to adhere to the rules set out in the Ministerial code relating to the Business Appointment Rules that cover the post-public office activities of ministers and senior officials. While the system of transparency is well advanced, with an online lobbying register, digital tools could be used more effectively.

Recommendations

✓ Extend the legally binding commitment to introduce liability for conflict-of-interest violations for post-public activities and during the term of appointment.

✓ Improve lobbying transparency and searchability of the online lobby register.

Recent progress on structural reforms

Recent reforms of the apprenticeship system aim to better target young people, including through full cost coverage for SMEs when apprentices are under 25, and a 75% government co-investment for levy-paying firms when apprentices are under 22. Further targeted support for young people is also under consideration. Additional structural reform efforts have focused on easing planning regulations to accelerate the delivery of physical infrastructure; on reducing welfare dependency to strengthen labour market participation; and on modernising digital infrastructure to boost technology diffusion and productivity. Specifically, the government is overhauling the National Planning Policy Framework to unlock infrastructure projects and housing development; has outlined reforms to the work capability assessment as part of the ongoing modernisation of disability and sickness support; and accelerated the rollout of full-fibre broadband and 5G networks.