Europe’s tax divide: Why Germany and France tax labour far more than the UK
Across Europe, the share of labour costs taken in tax and social contributions varies sharply. The UK is among the lowest, but the headline figure masks wider differences in how work is taxed across the continent.
The tax burden on labour plays a decisive role in how much workers actually take home — but it does not fall on employees alone. Employers also shoulder high costs through payroll taxes and social contributions.
This is where the tax wedge comes in.
It measures the share of total labour costs that goes to the government — through taxes and social contributions — rather than to the worker as take-home pay.
The tax wedge in Germany and France is around 50% higher than in the UK. This single comparison captures the wide variation across Europe.
So which countries levy the highest taxes on labour? And why do they differ so much?
What is a tax wedge?
It covers three components: personal income tax, employee social contributions, and employer social contributions. In short, it reflects not just what a worker earns on paper, but also the additional cost that employers bear on top of the gross salary.
According to the Tax Foundation's 2026 report, the tax wedge ranges from 26.4% in Cyprus to 50.8% in Belgium across 28 European countries — the EU member states and the UK. The figures reflect 2025 taxes for a single worker with no children earning the average national wage. Rates vary depending on family situation and income level.
Why is the UK's tax wedge so much lower?
The differences in labour taxes across Europe largely reflect how governments choose to fund public services and welfare systems.
Germany and France both operate social insurance-based models, where healthcare, pensions, unemployment support and other benefits are primarily financed through mandatory social security contributions. These are shared between employers and employees, which pushes up the overall tax wedge on labour.
Germany has the second-highest tax wedge at 46.6% while France sits close behind at 44.6%. In the UK, it is just 29.2% — the third lowest among all 28 countries.
Italy (42.5%) and Spain (40.1%) also exceed the 40% mark.
That means the tax wedge in Germany is 59.4% higher than in the UK, and 52.7% higher in France.
“This is partly because the British government spends a lower share of GDP [on public goods and services and social protection] than the other large European economies, apart from Spain,” Alex Mengden, economist at Tax Foundation, told Euronews Business.
Role of VAT and council tax in the UK
Mengden also noted that the UK funds a relatively large share of its spending through budget deficits— around 5.4% of GDP in 2025 — rather than current tax revenue.
“Value-added tax and council tax, a local household levy tied to property values, contribute a larger share to Britain’s tax revenue, allowing for a lighter tax burden on labour,” he added.
Mengden also pointed out that Germany's labour taxes — including social contributions — are more moderately progressive. This places the burden on a broader base, keeping more than half of households as net contributors to public finances at any given time. It also reduces the disincentive to work for those earning above the average wage.
Belgium is the only country where the tax wedge exceeds 50%, and Cyprus, Malta, the UK, Ireland, Croatia and Greece levy below a third.
The EU and UK average stands at 38.9%. In a vast majority of EU countries, the tax wedge is above 40%.
The composition of the wedge matters
The tax wedge captures the total government take from labour costs. But how that burden is split between workers and employers varies significantly.
Denmark, for example, levies the highest personal income tax rate at 35.3%, yet its overall wedge is slightly lower — thanks to cash benefits and negligible social security contributions from both workers and employers, which stand at less than 1%.
At the other end, employee social security contributions are very high in some countries, reaching 34.2% in Romania. Employer contributions also exceed 25% in countries like Slovakia.
The total tax wedge figure, therefore, only tells part of the story. Looking at its composition reveals who actually bears the burden — the worker, the employer, or both.
Only three other European countries also offer cash benefits, though at comparatively lower levels.
Switzerland has the lowest tax wedge in Europe
The OECD covers several countries not included in the Tax Foundation's report. Among them, Turkey has a tax wedge of 40.3% and Norway 36.4%. Switzerland (23%) has the lowest rate in Europe, across both datasets. Local tax competition between cantons and municipalities is a significant factor in Switzerland.
The Tax Foundation's estimates tend to be generally lower than those of the OECD, partly due to differences in methodology, including how progressivity and benefits are measured.
The ‘From gross pay to take-home’ article by Euronews examines the real salary picture across Europe for different scenarios — including households with children and those with one or two earners.
