{"id":11420,"date":"2023-09-20T09:41:36","date_gmt":"2023-09-20T08:41:36","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=11420"},"modified":"2023-09-20T09:50:23","modified_gmt":"2023-09-20T08:50:23","slug":"wedge2022","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2023\/09\/20\/wedge2022\/","title":{"rendered":"How much does the UK tax the average worker, compared to the rest of the world?"},"content":{"rendered":"\n

I posted some charts<\/a> yesterday on how the UK tax system compares to other countries when we look at tax as a % of GDP. One response was to say: “well, I don’t care about tax as a % of GDP… I care about the tax I <\/strong>pay”. Which is fair enough.<\/p>\n\n\n\n

How can we fairly compare the tax actual people pay? <\/p>\n\n\n

Tax wedge<\/h2>\n\n\n

The “tax wedge” is the tax paid by the average single worker divided by the gross wages.1<\/a><\/sup>In other words, this takes into account the income tax and national insurance\/social security paid by the worker him or herself, and also the national insurance\/social security paid by the employer (because there is good evidence that in the long run this is economically paid by the employee in the form of reduced wages).<\/span> It’s the best way I know to make a fair (or somewhat fair) comparison of the burden on tax on wages across the world. <\/p>\n\n\n\n

Looking at the OECD tax wedge data<\/a>, we see this:<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

I think many people will be surprised, even disbelieving, at where the UK places here.<\/p>\n\n\n\n

Clearly there are some very different social models, with Belgium (for example) having a much more expansive welfare state than Chile. So it’s useful to add in that wider context (again from OECD data<\/a>):<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

So in general terms, if you’re an average worker, you get what you pay for. <\/p>\n\n\n\n

Or, if we want to annoy lots of people, we can point out that there’s no country where the average worker pays less<\/strong> tax than the UK on their wages, but which has higher<\/strong> government spending.<\/p>\n\n\n

What about VAT?<\/h2>\n\n\n

If we just look at the standard rate of VAT in each country:<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

On the face of it the UK again looks very average.2<\/a><\/sup>There’s no USA on the chart, because the US has no VAT. Many states have sales taxes, but they’re nothing like VAT – the rate is much less (averaging around 5%) and the goods\/services covered are much more limited.<\/span><\/p>\n\n\n\n

But we can’t just compare the standard rate. Some countries apply the standard rate to almost everything; others have widespread exemptions and special rates. <\/p>\n\n\n\n

We can get a sense of this if we plot the rate of VAT against the amount of tax VAT collects, as a % of GDP:3<\/a><\/sup>Bear in mind the usual caveats about comparing different systems in different countries, and (as usual) ignore Ireland, because its reported GDP is distorted<\/a> by multinational [HQ locations]\/[tax avoidance] (delete per your preference). <\/span><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

The chart suggests the UK collects a bit less VAT (as a % of GDP) than you might expect from its rate.4<\/a><\/sup>Actually it’s worse than that, because VAT compliance in the UK is pretty good, and so masks what is a very limited VAT base (i.e. wide exemptions\/lower rates) by international standards. Rita de la Feria, perhaps the world’s leading VAT academic, has written convincingly <\/a>on this.<\/span><\/p>\n\n\n\n

The bottom line is that there is no evidence that the average Brit is over-taxed by international standards.<\/p>\n\n\n\n

The spreadsheets with the data and charts are available here<\/a>.<\/p>\n\n\n\n

<\/div>\n\n\n\n
\n\n\n\n