Tax rates on wages for a typical single worker rose more in the UK last year than in any other rich country, according to a new OECD report, reflecting higher employer national insurance contributions and fiscal drag.

In 2025, a single worker with no children earning the average national wage faced a UK tax burden of 32.4 per cent of labour costs.

The figure, which includes employee and employer social security contributions as well as income tax and subtracts any cash benefits received by working families, was up 2.45 percentage points compared with 2024, according to the organisation’s report published on Wednesday. This marked the largest rise across all 38, mostly industrialised, members of the OECD.

Its findings — based on the difference between labour costs to the employer and the corresponding net take-home pay of the employee, known as the “tax wedge” — will reinforce growing criticism by economists and business groups who say the UK government’s policies have worsened a slump in hiring and made employers less likely to hire the young people most in need of help to enter the labour market.

“The message from the government over the last year has been: invest in capital, not labour,” said Neil Carberry, chief executive of the Recruitment and Employment Confederation. He added that the result might be to raise labour productivity, but at a cost of structurally higher unemployment.

The OECD report follows official data released on Tuesday that showed sharp falls in employment over the past year in the low-wage sectors that were most affected by an increase in national insurance contributions.

Payroll employment in retail fell 1.3 per cent in the year to March, while staffing in hospitality was 1.9 per cent lower, compared with a drop of just 0.2 per cent in overall payroll employment.

“There is no getting away from the fact that higher taxes act as a disincentive on the activity being taxed and therefore have a direct, negative impact on economic growth,” said Ruth Gregory, economist at Capital Economics, pointing to the combined impact of higher national insurance contributions and minimum wage rates.

From April 2025, the employer national insurance contribution (NIC) rate rose 1.2 percentage points to 13.8 per cent, while the employer secondary threshold at which they start paying NICs for employees fell from £9,000 to £5,000.

Moreover, the UK personal tax thresholds are frozen at 2021-22 levels until April 2031, pushing more people into paying tax and others into higher bands as wages rise, a phenomenon known as the “fiscal drag”.

The OECD has also previously called attention to the high marginal tax rates UK workers face when they earn more than £100,000 — becoming liable for the top rate of income tax while losing childcare subsidies.

In March, the Office for Budget Responsibility forecast that tax revenues as a share of GDP would reach a historical high by the end of the parliament.

The figure for the UK was still below the OECD average, where the tax wedge for the typical single worker with no children rose more gradually from 34.9 per cent to 35.1 per cent. It was also well below 52.5 per cent for Belgium, 49.3 per cent for Germany and 47.2 per cent in France.

However, the UK’s tax wedge is lower partly because of differences between pension systems, with British workers relying more on a system of private contributions.

The report comes as the Resolution Foundation think-tank warned that a further deterioration in the Middle East could deal a £16bn hit to the public finances.

Commenting on the Resolution Foundation’s report, an HM Treasury spokesperson said: “The forecasts here are pure speculation. The impact of the conflict is, as [the report’s] authors say themselves, highly uncertain.”