Do workers in the UK pay more or less tax than in other parts of the world?

31 May 2017

Do workers in the UK pay more or less tax than their equivalents in other parts of the world? A simple question you might think, but, as at least one newspaper found this week, getting an answer is far from straightforward.

You can’t simply compare rates between countries because of the different way allowances and reliefs work so you have to find some way of averaging out the figures to get something like the total tax burden for a given level of income. Easier said than done. I could spent the next ten issues of this briefing explaining why, but in the interest of ensuring that our circulation does not drop through the floor I’ll confine myself to three points.

The first is social security taxes. Almost all countries impose some sort of levy on employment. In the UK this is National Insurance – other regimes use different terms. Generally speaking the levy is split between employer and employee but the balance between the two can vary enormously. In the UK the employer pays 13.8 per cent on all income: the employee pays 12 per cent on the first slug of income and then 2 per cent on the top slice. In very broad terms for those on average incomes the burden between employer and employee contributions is shared roughly equally. But in other countries the balance is very different – in Italy and France for example the employer burden is several times greater than the employee burden while at the extreme Sweden puts all of the burden onto the employer. If you look just at take home pay after tax and employee contributions you don’t get a true comparison of the real tax cost of employment. You can cut the figures in different ways, but unless you know the basis on which employer costs have been factored in you need to handle the figures with care.

Secondly is that taxes on income are only part of the picture. If you are looking at total tax burden you need to take account of consumption taxes such as VAT, property taxes and local/state taxes. It is almost impossible to find a consistent way of comparing figures even if you are trying to be strictly politically neutral. And I don’t need to remind you that at the moment not everybody is trying to use tax statistics objectively.

Finally there is the other side of the coin. What do you get for your taxes? The effective rate of tax in France is very high when taking into account employer costs, but state funded pensions are much higher than in the UK. Do you count social security benefits as some sort of negative tax? Some countries do and some don’t. If you pay £100 in tax but get £80 in tax credits how much tax do you really pay? £100 or £20?

As the reality of Brexit looms ever larger there will be much discussion on how overall UK tax rates compare to the rest of the EU. It would be too cynical of me to say ‘don’t believe a word anybody says’ but if there was ever time for taking things with the proverbial pinch of salt it is now.

I won’t end with the famous quote about statistics usually attributed to Mark Twain. Instead I’ll use one I hadn’t seen before, from the American humourist Evan Esar: ‘statistics is the only science that enables different experts using the same figures to draw different conclusions’. The only exception of course being the statistics in our weekly tax brief.

For more information please get in touch with Andrew Hubbard, or your usual RSM contact.