Overview
- An OECD payroll-tax report released Wednesday found the UK’s tax wedge for a single average earner rose by 2.45 percentage points in 2025, the largest increase among 38 member countries.
- The tax wedge is the share of an employer’s total labour cost that ends up as tax after benefits, and the OECD said the UK’s rise was unusual even though many countries saw smaller increases.
- Chancellor Rachel Reeves’s October 2024 Budget lifted the employer national insurance rate to 15% and cut the threshold where it starts to £5,000, while frozen income tax bands pulled more pay into higher tax.
- Despite the jump, the UK’s tax wedge for a single average earner stood at 32.4%, which the OECD said is below the 35.1% OECD average, and married workers typically faced a lower wedge than single workers.
- Official figures cited in the coverage show payrolled employment has fallen by 143,000 since October 2024 as employers report higher labour costs, and the OECD urged simpler UK tax rules to cut compliance costs and support hiring and growth.