Across Europe, the share of labour costs that goes to the state varies dramatically, shaping both take-home pay and the cost of hiring. The tax wedge — which measures the total burden of personal income tax, employee social contributions, and employer social contributions as a percentage of total labour costs — reveals a continent split by different fiscal philosophies.
In Germany and France, the wedge stands at 46.6% and 44.6% respectively, according to the Tax Foundation's 2026 report based on 2025 data for a single worker earning the average national wage. That is roughly 50% higher than in the United Kingdom, where the wedge is just 29.2% — the third lowest among 28 European countries surveyed. Only Cyprus (26.4%) and Malta (28.4%) are lower.
Why the gap is so wide
The divergence reflects how governments choose to finance public services. Germany and France operate social insurance models, where healthcare, pensions, and unemployment benefits are funded primarily through mandatory contributions shared between employers and employees. This pushes the wedge upward. The UK, by contrast, relies more on value-added tax and council tax — a local property levy — and runs a budget deficit equivalent to 5.4% of GDP in 2025, according to Alex Mengden, an economist at the Tax Foundation.
“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,” Mengden told Euronews Business. Spain’s wedge is 40.1%, while Italy’s is 42.5%.
The UK’s lighter labour tax burden does not mean workers are better off overall. The country’s higher reliance on consumption taxes and property levies shifts the fiscal load away from employment, but the total tax take as a share of GDP remains lower than in Germany or France.
Composition matters: who pays what
The tax wedge aggregates three components, but the split between workers and employers varies significantly. Denmark, for example, has 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 — less than 1% from both sides. At the other extreme, employee social security contributions reach 34.2% in Romania, while employer contributions exceed 25% in Slovakia.
Belgium is the only country where the wedge surpasses 50%, at 50.8%. The EU and UK average is 38.9%, with a majority of EU member states above 40%. Switzerland, not included in the Tax Foundation dataset but covered by the OECD, has the lowest wedge in Europe at 23%, driven by local tax competition between cantons and municipalities.
Mengden also noted that Germany’s labour taxes are more moderately progressive, placing the burden on a broader base. This keeps more than half of households as net contributors to public finances at any given time and reduces disincentives to work for those earning above the average wage.
The tax wedge figures highlight a fundamental policy choice: whether to fund the welfare state through payroll taxes or through other revenue streams. As energy costs drive inflation higher in Germany and Spain, the debate over labour taxation is likely to intensify, especially as the European Central Bank weighs its next rate decision.
For now, the gap between the UK and its large continental neighbours remains stark. But the headline wedge number tells only part of the story. Looking at its composition reveals who actually bears the burden — the worker, the employer, or both — and how different European models balance competitiveness with social protection.
