5th September 2026
No Organisation for Economic Co-operation and Developme (OECD) rich country with a higher tax-to-GDP ratio than the UK in 2025 was able to achieve this without placing a heavier burden on middle earners, suggesting it is unrealistic to say we can have higher defence spending without higher taxes on such workers, the Resolution Foundation said this week.
Thin end of the wedge looks at how workers’ ‘tax wedge’ – total taxes on earnings minus cash benefits – has changed as a result of decisions taken in Autumn Budget 2024.
For a UK single earner on the OECD average wage of £56K, their tax wedge increased from 29.9 per cent in 2024 to 32.4 per cent in 2025. Though this represents the largest jump among OECD countries, it still leaves the UK’s average tax wedge 2.7 percentage points below the OECD average, and behind countries such as Ireland and Japan.
This is because the UK started 2024 with taxes on labour at a relative international and historical low. In 2024, the average worker in the UK had a tax wedge that was the lowest in the G7, behind even the United States and Canada. The recent changes have bumped the UK up slightly to the ninth lowest of the 33 rich OECD countries.
Personal taxes on middle earners also remain low by historical standards. A worker earning the UK median for all employees of £33K in April 2025 – after rises to National Insurance had come into effect – still had a lower effective tax rate than before the financial crisis.
Most tellingly, of the 16 OECD rich countries with a higher tax-to-GDP ratio than the UK, all require higher contributions from a single earner on average wages.
With defence spending set to rise and debt interest costs already at an all-time high, the report notes that the question of who is asked to pay for a growing state is becoming increasingly pressing.
The analysis strongly suggests that any politician promising a bigger state and lower taxes on middle earners is not being realistic. Given the Government’s intention to increase defence spending, there is a clear case for paying for this through broad-based tax rises that include middle earners paying more.
James Smith, Chief Economist at the Resolution Foundation, said:
“Despite recent increases, the UK still taxes average earners less than most of our international peers.
“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 middles earners.’’
Read the full Reolution foundation report HERE
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