The UK's headline tax rates haven't risen — but your tax bill has. The reason is fiscal drag: the Personal Allowance (£12,570) and the higher-rate threshold (£50,270) have been frozen at their 2021/22 levels while wages climbed. As your pay rises, more of it spills over the unchanged thresholds — a stealth tax rise nobody ever has to vote for.
Earner on £60,000
+£2,646
extra income tax this year vs CPI-uprated thresholds
Even on £30,000
+£700
a year, from the frozen Personal Allowance alone
Thresholds are
~27.9% low
below where CPI would have carried them since 2021/22
What the thresholds would be if they'd kept pace with inflation
Income-tax thresholds are normally uprated by September CPI — the autumn figure feeds the following April. Compounding each year's actual September CPI from 2021/22 to 2026/27 gives a cumulative 27.9% rise. Applied to the frozen thresholds:
- Personal Allowance: would be about £16,070 — not £12,570.
- Higher-rate threshold: would be about £64,270 — not £50,270.
The September CPI figures used (ONS): Sept 2021 3.1%, Sept 2022 10.1%, Sept 2023 6.7%, Sept 2024 1.7%, Sept 2025 3.8%.
What the freeze costs at every salary (2026/27)
We run the SalaryGrid engine twice for each salary — once on the real 2026/27 thresholds, once on the inflation-uprated thresholds above — and take the difference. Rates and the £100k taper are held constant, so this isolates the income-tax cost of the freeze (National Insurance excluded).
| Gross salary | Income tax (2026/27) | If uprated with CPI | Extra you pay |
|---|---|---|---|
| £20,000 | £1,486 | £786 | +£700 |
| £25,000 | £2,486 | £1,786 | +£700 |
| £30,000 | £3,486 | £2,786 | +£700 |
| £35,000 | £4,486 | £3,786 | +£700 |
| £40,000 | £5,486 | £4,786 | +£700 |
| £45,000 | £6,486 | £5,786 | +£700 |
| £50,000 | £7,486 | £6,786 | +£700 |
| £60,000 | £11,432 | £8,786 | +£2,646 |
| £70,000 | £15,432 | £11,932 | +£3,500 |
| £80,000 | £19,432 | £15,932 | +£3,500 |
| £100,000 | £27,432 | £23,932 | +£3,500 |
Why higher earners are hit hardest
Below the higher-rate threshold the only effect is the frozen Personal Allowance, which adds a flat ~£700 a year for most basic-rate earners. The moment your pay crosses £50,270, the frozen higher-rate threshold starts dragging a slice of income into 40% tax that an inflation-adjusted threshold would still tax at 20% — which is why the cost jumps to £2,646 at £60,000 and £3,500 at £100,000. The single most effective legal counter is salary sacrifice, which lowers your taxable pay below the frozen thresholds and reclaims the drag as pension wealth.
Fiscal drag FAQs
- What is fiscal drag?
- Fiscal drag is the stealth tax rise that happens when tax thresholds are frozen while wages grow. As your pay rises with inflation, more of it falls above the (unchanged) tax-free allowance and into higher tax bands — so you pay a larger share of your income in tax even though the headline rates never went up.
- Which UK thresholds are frozen, and since when?
- The Personal Allowance (£12,570) and the higher-rate threshold (£50,270) have been frozen at their 2021/22 levels and are due to stay frozen to 2027/28. Freezing them while prices and wages rise is what produces the fiscal-drag effect quantified on this page.
- How much would the thresholds be if they'd risen with inflation?
- Uprated by each year's September CPI from 2021/22 to 2026/27 — a cumulative 27.9% — the Personal Allowance would be about £16,070 (not £12,570) and the higher-rate threshold about £64,270 (not £50,270). That gap is the freeze.
- How is the extra tax on this page calculated?
- We run the same SalaryGrid tax engine twice for each salary: once on the real 2026/27 thresholds, and once on the inflation-uprated thresholds above (all rates and the £100k taper held constant). The difference in income tax is what the freeze costs you. It's income tax only — National Insurance and the £100k Personal Allowance taper are excluded to keep the comparison clean.
- Why does a £60,000 earner lose so much more than a £30,000 earner?
- Below £50,270 the only effect is the frozen Personal Allowance, costing roughly £700 a year. Above it, the frozen higher-rate threshold drags a slice of pay into 40% tax that the inflation-adjusted threshold would still have taxed at 20% — so a £60,000 earner loses about £2,646 a year, far more than the allowance effect alone.
Methodology: thresholds uprated by each year's September CPI (ONS Consumer Prices Index bulletins, Sept 2021–Sept 2025), compounded 2022/23→2026/27. Income tax only; National Insurance and the £100,000 Personal Allowance taper excluded. Figures computed live by the SalaryGrid calc-engine on the 2026/27 HMRC ruleset.