Fiscal drag
UK tax glossary · Last reviewed: April 2026
The Personal Allowance and higher-rate threshold have been frozen at £12,570 and £50,270 since April 2021. With average wages rising 4–6% per year, more workers are pulled into paying tax or paying higher-rate tax without any change in tax rates.
The OBR estimates fiscal drag will have cost average earners several thousand pounds in additional tax by the time thresholds are unfrozen. The current freeze is planned to end in April 2028.
Fiscal drag is sometimes called a 'stealth tax' because Parliament does not vote on a rate increase — it simply happens as earnings grow relative to fixed bands.
Worked example
In 2021/22: salary £48,000 — entirely basic rate. In 2026/27: salary £56,000 (same real terms after inflation) — £5,730 is now in the higher-rate band at 40%. Extra annual tax versus a thresholds-rising scenario: ~£2,292.
Common questions
When will the Personal Allowance increase again?
The government has committed to thawing the freeze from April 2028, though future budgets could change this. Until then, the allowance remains at £12,570.
How can I protect myself from fiscal drag?
Pension contributions reduce adjusted net income, keeping more of your pay below the basic-rate threshold or Personal Allowance taper. Salary sacrifice is the most tax-efficient route for employees.
TaxHelper provides general information based on published HMRC rates and guidance. It is not regulated financial or tax advice. For decisions involving significant sums, complex circumstances, or if you are unsure, speak to a qualified accountant or HMRC directly.