Bad news for middle earners in the UK – tax rises are coming
Key Points
- UK tax wedge on a £56,000 earner rose from 29.9% to 32.4% between 2024 and 2025
- That is the biggest single-year jump recorded across the OECD
- The UK still sits 2.7 percentage points below the OECD average on labour taxes
- All 16 rich OECD countries with a higher tax-to-GDP ratio tax average earners more
- Resolution Foundation says higher defence spending requires broad-based tax rises
Middle earners face higher taxes to pay for rising defence spending, new Resolution Foundation research published on Wednesday (2 September) has found.
The think tank’s report, Thin end of the wedge, tracks how the workers’ “tax wedge” – total taxes on earnings minus cash benefits – has shifted since the Autumn Budget 2024. Its conclusion is that no rich OECD country funds a bigger state while asking less of its average workers.
A single UK earner on the OECD average wage of £56,000 saw their tax wedge climb from 29.9% in 2024 to 32.4% in 2025. That is the largest single jump recorded anywhere in the OECD over the period.
Even after that rise, the UK sits 2.7 percentage points below the OECD average and behind countries including Ireland and Japan.
The reason is that Britain entered 2024 taxing labour at both an international and a historical low. The average UK worker carried the lowest tax wedge in the G7 that year, below both the United States and Canada.
The recent changes have moved the UK up to the ninth lowest position among the 33 rich OECD countries.
Personal taxes on middle earners also remain low against Britain’s own history. A worker on the UK median wage for all employees of £33,000 in April 2025, after the National Insurance rises had taken effect, still faced a lower effective tax rate than before the financial crisis.
The most telling comparison concerns the 16 rich OECD countries that collect more tax as a share of GDP than the UK does. Every one of them takes a bigger contribution from a single earner on average wages.
Who pays for a bigger state?
Defence spending is set to rise and debt interest costs have already hit an all-time high, which sharpens the question of who funds the expansion.
The Resolution Foundation argues that any politician promising both a larger state and lower taxes on middle earners is not describing a realistic position. It said the case for broad-based tax rises, including higher rates on middle earners, follows directly from the Government’s defence commitments.
“Despite recent increases, the UK still taxes average earners less than most of our international peers,” said James Smith, Chief Economist at the Resolution Foundation.
“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 middle earners.”
