Employer NI rise took effect, pushing employee tax wedges up

The employer National Insurance rise announced in Budget 2024 took effect in April 2025, raising the effective tax rate on the median employee to 27 per cent, according to the Resolution Foundation¹. The think tank says this is lower than before the financial crisis, when the rate was 29 per cent in 2007-08, but the highest since 2011-12¹.

The rise came alongside an ongoing freeze to tax thresholds. The Resolution Foundation says the employer NI rise and the threshold freeze have pushed effective tax rates up, while the personal NI cuts of 2024 and the allowance increases of the 2010s had significantly lowered them¹. For lower-paid employees, the tax wedge has risen to 16 per cent, the highest level since 2010-11, though still below its pre-financial-crisis level of 18 per cent in 2007-08¹. The foundation attributes this to the employer NI rise and the fact that lower-paid workers gained little from the employee NI cuts¹.

The make-up of the tax burden has shifted. Employer NI is now 42 per cent of the tax wedge on a typical employee salary, described as a record share, up from 28 per cent in 1999 and a third in 2017-18¹. Effective employer NI for the median employee has risen from 9 per cent in 2007-08 to 11 per cent in 2025-26, assuming the cost is ultimately borne by workers¹. Effective Income Tax for the median earner has risen from 9 per cent in 2019-20 to 11 per cent, while employee NI has fallen to a record low of 4 per cent¹.

The foundation says the change has widened the tax difference between employment and self-employment. A typical employee now pays a record 55 per cent more tax than an equivalent self-employed worker, and the cost of the self-employment tax break has topped £9 billion a year¹.

The report also sets UK rates against international comparisons. In 2024, the UK had the lowest effective tax rate on an average full-time employee in the G7, at 21 per cent, against 24 per cent in the US and 37 per cent in Germany¹. Adding employer NI took the total tax wedge for that employee to 29 per cent, again the lowest in the G7 and below the OECD average of 35 per cent¹. The foundation estimates the employer NI rise could take that figure to 32 per cent, which would overtake at least the US's 2024 value, though it says the UK would remain below the OECD average¹.

Why it matters for households

The employer NI rise affects what employers pay to employ staff, and the Resolution Foundation assumes this cost is ultimately borne by workers through lower pay growth than would otherwise occur¹. For the median employee, the overall effective tax rate including employer NI is 27 per cent in 2025, based on a median salary of around £33,000 in April 2025¹. Lower-paid employees face a tax wedge of 16 per cent, the highest since 2010-11¹. The threshold freeze means more of any pay rise is drawn into tax as wages increase¹.

What happens next

The Resolution Foundation says the OECD's next publication will give a definitive international comparison for 2025 values, because other countries' tax systems also change¹. It notes that the ONS household income data it cites does not reflect the 2024 personal NI cuts or the April 2025 employer NI rise¹.