The UK has seen the steepest increase in employment taxes among advanced economies, according to OECD analysis.
The tax wedge—the gap between employer costs and employee take-home pay—rose to 32.4% for average earners in 2024, up 2.45 percentage points from the prior year. That dwarfs the OECD average rise of just 0.15 points and outpaces every other country in the 38-nation study.
While Britain’s absolute rate remains below the OECD average of 35.1%, the speed of change has alarmed economists. The OECD warned that a widening wedge reduces incentives to work and hire.
The rise stems from Chancellor Rachel Reeves’ October 2024 Budget, which lowered the employer national insurance threshold from £9,100 to £5,000 and raised the rate from 13.8% to 15%. Frozen income tax thresholds until 2031 compound the effect through fiscal drag.
The labour market shows strain. Payrolled employment has fallen by 143,000 since the changes were announced. Economic inactivity rose to 21% in the three months to February.
For SMEs already facing higher borrowing costs and weak consumer demand, the rising tax wedge adds further pressure.