New statistics show that private sector wages have fallen further behind inflation in Britain than anywhere in the industrialised world except Mexico, Turkey and Iceland as the recession bit last year.
The Organisation for Economic Co-operation and Development, based in Paris, said the gross average wage in Britain increased by 0.5 per cent to £33,745, which was equivalent to a 1.6 per cent decline after taking account of inflation.
The ” financial and economic crisis” was responsible for the higher number of countries seeing real wage cuts, it said, while noting that low-waged workers were particularly vulnerable to losing their jobs, which tended to push up average wage -levels.
The average income tax rate fell by 0.2 per cent in Britain last year, according to its annual publication, Taxing Wages . Overall, aver-age tax and social security burdens on employment incomes fell slightly in 24 out of 30 countries last year.
The declines reflected governments’ attempts to shore up their recession-torn economies by cutting income taxes and, in some cases, social security contribution, as well as the declines in wages in some countries.
Quoted in today’s Financial Times, the OECD said the pressures on public budgets meant it was uncertain whether this trend would continue. Angel GurrÃÂa, the OECD’s secretary-general, said: “Gov-ernments have to reconcile support to a still- fragile recovery with the need to move to a more sustainable fiscal path. Lower taxes on labour can help to boost recovery, but only as part of a broader, balanced package.”
Gross wages fell in four OECD countries – by 2.7 per cent in Japan and Ireland, by 1.1 per cent in Germany and by 0.8 per cent in the US.
In most countries they increased, by up to 5.9 per cent in Hungary, largely reflecting different rates of inflation.
The OECD said the UK levied a relatively low tax burden on labour income, which had stayed reasonably constant over the past decade. The exception was low-paid single parents, whose tax burden had fallen strongly over the past 10 years.
But effective tax rates might be higher in the UK than other apparently high-tax countries because it has a relatively broad tax base with fewer exemptions and allowances than some other countries.
Bert Brys, of the OECD centre for tax policy and administration, said Spain, Ireland and Greece had already announced tax changes.
He expected that most politicians wait until the second half of the year or next year because of a reluctance to kill a weak recovery by raising taxes. “Next year we will see a lot more change,” he said.
But there were already signs of a halt to the trend of reducing corporate tax rates, he said. Some countries had taken steps to reduce employers’ national insurance for companies taking on previously unemployed workers.
