The OECD recently released its latest Taxing Wages 2022 report, and it’s interesting to see where the UK falls compared to other developed nations when it comes to tax. One of the purposes of this particular paper was to look at the impact of Covid-19 on how workers were taxed across 38 different nations – and it makes for interesting reading!
The UK’s ‘tax wedge’ falls just below the OECD average
The ‘tax wedge’ is the gap between what the employer pays for labour and what the worker takes home, and there’s an enormous range between nations. In Belgium, workers lose 52.6% of their income to taxes, while in Colombia it’s zero.
Here in the UK, the tax wedge in 2021 was 31.3%, only marginally lower than the OECD average of 34.6%. The tax wedge figures for other European nations are generally higher, with countries like France and Germany both promoting a ‘high taxation and high public spending’ approach to providing state welfare.
In the UK, however, the current Conservative government has habitually aimed for a ‘low tax, high growth’ maxim. Good news for business investment and personal wealth management – not so great when it comes to finding the funds to get the UK out of austerity.
Interestingly, our Commonwealth partners, Australia and New Zealand, both have much smaller tax wedges. Australia’s main tax wedge was 27.1% and Kiwis only paid 19.4%!
Here are a few other countries’ tax wedge numbers, to put things in perspective.
2021 tax wedge by country
- Belgium – 52.6%
- France – 47%
- Netherlands – 35.3%
- OECD average – 34.6%
- United Kingdom – 31.3%
- United States – 28.4%
- Australia – 27.1%
- New Zealand – 19.4%
- Colombia – 0%
You can see the full table here.
Starting a family cuts your tax – but not by much in the UK
Across all 38 nations analysed, families with children pay a lower tax wedge than single earners without children. The average was 24.6% for single-earner families with children, compared to 28.8% for double-earner families with children and 34.6% for individuals without children.
In the UK, there was less of a pronounced gap. The single-earner family tax wedge was 27%, while the double-earner family was 27.2% and the single person tax wedge was 31.3%.
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All information provided in this article is for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant. It should in no way be considered as advice provided by Hawthorne Tax Consultancy or any of its principals. All information is deemed to be correct at the time of writing.