No OECD rich country with a higher tax-to-GDP ratio than the UK
in 2025 was able to achieve this without placing a heavier burden
on middle earners, suggesting it is unrealistic to say we can
have higher defence spending without higher taxes on such
workers, the Resolution Foundation said today (Wednesday).
Thin end of the wedge looks at how workers' tax wedge'
total taxes on earnings minus cash benefits has changed as a
result of decisions taken in Autumn Budget 2024.
For a UK single earner on the OECD average wage of £56K, their
tax wedge increased from 29.9 per cent in 2024 to 32.4 per cent
in 2025. Though this represents the largest jump among OECD
countries, it still leaves the UK's average tax wedge 2.7
percentage points below the OECD average, and behind countries
such as Ireland and Japan.
This is because the UK started 2024 with taxes on labour at a
relative international and historical low. In 2024, the average
worker in the UK had a tax wedge that was the lowest in the G7,
behind even the United States and Canada. The recent changes have
bumped the UK up slightly to the ninth lowest of the 33 rich OECD
countries.
Personal taxes on middle earners also remain low by historical
standards. A worker earning the UK median for all employees of
£33K in April 2025 after rises to National Insurance had come
into effect still had a lower effective tax rate than before the
financial crisis.
Most tellingly, of the 16 OECD rich countries with a higher
tax-to-GDP ratio than the UK, all require higher contributions
from a single earner on average wages.
With defence spending set to rise and debt interest costs already
at an all-time high, the report notes that the question of who is
asked to pay for a growing state is becoming increasingly
pressing.
The analysis strongly suggests that any politician promising a
bigger state and lower taxes on middle earners is not being
realistic. Given the Government's intention to increase defence
spending, there is a clear case for paying for this through
broad-based tax rises that include middle earners paying more.
James , Chief Economist at the Resolution
Foundation, said:
Despite recent increases, the UK still taxes average earners less
than most of our international peers.
No other OECD rich country has a bigger state and a lower burden
on average workers, so any politician promising both is not being
realistic.
There is a strong case that any benefits of increased defence
spending will be broadly shared, so the tax rises needed to find
this should be too, including higher rates on middles earners.''
Notes to Editors
- OECD rich countries excludes Chile, Colombia, Costa Rica,
Mexico and Türkiye from the group of OECD member countries in
order to focus on 33 comparable advanced economies.
