The tax burden on UK workers increased more sharply than in any other advanced economy last year, raising fresh concerns about hiring and job creation.
New figures show that a typical single worker earning the average wage faced a tax burden equivalent to 32.4 percent of labour costs in 2025, reflecting a significant year-on-year increase.
The data comes from the Organisation for Economic Co-operation and Development, which tracks how much of an employee’s earnings are taken through income tax and social contributions.
The rise was driven by higher employer National Insurance contributions and frozen tax thresholds, which are pulling more workers into higher tax bands as wages increase.
Higher employment costs weigh on hiring
The increase has added to pressure on employers, particularly in sectors already facing tight margins and weaker demand. Business groups warn that higher taxes on employment risk discouraging hiring, especially for lower-paid roles and entry-level positions.
Neil Carberry, chief executive of the Recruitment and Employment Confederation, said the policy direction had moved away from supporting workforce growth. “The message from the government over the last year has been: invest in capital, not labour,” he was quoted in the Financial Times as saying.
He said the outcome could be a more productive economy but with fewer jobs overall. “The result might be to raise labour productivity, but at a cost of structurally higher unemployment.”
Labour market data released this week shows employment falling in sectors most exposed to rising costs. Retail payroll numbers declined over the past year, while hospitality employment also dropped, compared with only a slight overall fall across the wider workforce.
Fiscal drag adds to pressure on workers
Alongside higher employer costs, workers are also being affected by frozen tax thresholds, which remain fixed despite rising wages. This so-called fiscal drag means more employees are paying tax or moving into higher tax bands without a corresponding increase in real earnings.
Economists say this is contributing to a gradual increase in the overall tax take, even without headline rate rises. Despite the increase, the UK’s overall tax burden on wages remains lower than in several major European economies.
The OECD data shows significantly higher rates in countries such as Belgium, Germany and France, where the combined tax and social contribution burden is substantially greater.
But differences in pension systems and social benefits mean comparisons are not always straightforward, with UK workers more reliant on private pension contributions.
Outlook clouded by wider economic pressures
The rise in labour taxes comes at a time of broader economic uncertainty, with growth forecasts weakening and external pressures adding strain to public finances.
The Office for Budget Responsibility has warned that the tax burden as a share of the economy is on track to reach historic highs in the coming years.
At the same time, the Resolution Foundation, an independent think tank, has cautioned that geopolitical risks, including the conflict in the Middle East, could further impact government finances.
A Treasury spokesperson said the economic outlook remained uncertain but defended the government’s approach, adding that external factors were placing pressure on the UK economy.
William Furney is a Managing Editor at Black and White Trading Ltd based in Kingston upon Hull, UK. He is a prolific author and contributor at Workplace Wellbeing Professional, with over 127 published posts covering HR, employee engagement, and workplace wellbeing topics. His writing focuses on contemporary employment issues including pension schemes, employee health, financial struggles affecting workers, and broader workplace trends.
- William Furney
- William Furney
- William Furney
- William Furney
