Taxes on UK workers have risen at fastest rate in rich world, says OECD
Summary
Taxes on workers in the UK increased at the fastest rate among wealthy countries in 2025, according to the OECD. This rise is mainly due to higher national insurance contributions for employers and inflation-related tax effects introduced by the Labour government.Key Facts
- The OECD reported that the UK’s “tax wedge” on labor rose by 2.45 percentage points in 2025, the largest increase among 38 rich nations.
- The “tax wedge” measures total taxes paid by both employees and employers, minus benefits that workers receive.
- Labour’s 2024 autumn budget raised employer national insurance contributions (NICs) and did not increase tax thresholds to match inflation, causing “fiscal drag.”
- Despite the rise, the UK’s overall tax on work (32.4%) is still below the OECD average of 35.1%.
- Other countries with notable tax wedge increases were Estonia, Germany, and Israel, but none as high as the UK.
- Unemployment has increased since Labour took office but recently dropped slightly, remaining above pre-election levels.
- Business groups have criticized the government’s tax and wage policies, arguing they hurt job creation in low-paying sectors like retail and hospitality.
- The IMF warned that the ongoing Middle East conflict could worsen economic conditions and possibly lead to a global recession, impacting the UK strongly.
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