UK employers saddled with sharpest tax rise in developed world, OECD finds

"The so-called 'tax wedge', the gap between what it costs an employer to put someone on the books and what the employee actually takes home, climbed to 32.4 per cent last year, up from just under 30 per cent the year before. That 2.45 percentage point jump dwarfs the OECD-wide average rise of a mere 0.15 points."

"The OECD warned that a widening wedge 'tends to reduce incentives to work and hire by reducing take-home pay and increasing employers' labour costs', a particularly bruising message for the small and medium-sized enterprises that dominate Britain's private-sector payroll."

"Reeves slashed the earnings threshold at which employers start paying national insurance to £5,000 from £9,100, a move that hit hardest those firms employing part-time workers and lower-paid staff, think cafés, care homes, corner shops and hospitality operators."

The OECD reports that UK employment taxes have risen sharply, primarily due to Chancellor Rachel Reeves' October 2024 Budget. This budget raised employers' national insurance contributions and froze personal income tax thresholds, increasing the tax wedge for average earners to 32.4%. This rise is significantly higher than the OECD average increase. The changes particularly affect small and medium-sized enterprises, as the earnings threshold for national insurance was lowered, impacting part-time and lower-paid workers. Economists warn that this widening tax wedge reduces incentives to work and hire.

Read at Business Matters