How much does fiscal drag cost UK workers?

The OBR estimates frozen thresholds will cost the average higher-earning taxpayer hundreds to thousands of pounds extra per year by 2028.

How can I avoid fiscal drag?

Maximise pension contributions and ISA contributions to reduce your taxable income. This keeps you in a lower tax band despite rising wages.

Tax & HMRC ⏱ 2 min read 📅 Updated Apr 2026

What Is Fiscal Drag UK? The Hidden Tax Rise Costing Millions 2026

Q: What is fiscal drag UK?

Fiscal drag happens when tax thresholds are frozen while wages rise. More income gets taxed at higher rates without any formal tax rate increases.

Chandraketu Tripathi

Finance Editor, Kaeltripton

Published 3 Apr 2026

Last reviewed 20 Apr 2026

✓ Fact-checked

What Is Fiscal Drag UK? The Hidden Tax Rise Costing Millions 2026

UK Tax Guide — April 2026

Fiscal drag (also called bracket creep) is what happens when tax thresholds are frozen while wages rise. As your income increases you are pushed into higher tax brackets even though your real purchasing power may not have grown.

UK Fiscal Drag in 2026

Tax Threshold	Amount	Frozen Until
Personal Allowance	£12,570	At least 2031
Basic Rate Band top	£50,270	At least 2031
Higher Rate Band top	£125,140	Ongoing

How Much Is Fiscal Drag Costing?

Current Salary	Extra Tax Paid vs 2022/23
£30,000	Hundreds of pounds as pay rises are increasingly taxed
£50,000	£254 more per year
£60,000	~£2,000 more per year
£100,000	£3,000+ more per year

How Many People Are Affected?

The OBR estimates that by 2028 an additional 3.7 million people will have been dragged into paying income tax and a further 3 million will have moved from the basic to the higher rate band — purely because of frozen thresholds while wages rose.

How to Reduce the Impact

Maximise pension contributions — reduces taxable income and keeps you in a lower tax band
Use your full £20,000 ISA allowance — all gains and income tax-free
Salary sacrifice for pension or benefits — reduces gross pay
Check Marriage Allowance eligibility — transfer £1,260 of unused personal allowance
Ensure you are not paying higher rate tax unnecessarily — check your tax code

Bottom line: Fiscal drag is a silent tax rise costing UK workers billions since 2022. With thresholds frozen to at least 2031 every pay rise is taxed more heavily. Maximise pension and ISA contributions to reduce your taxable income and protect against further fiscal drag.

By Chandraketu Tripathi · Updated April 2026 · kaeltripton.com

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Chandraketu Tripathi

Finance Editor · Kaeltripton.com

Chandraketu (CK) Tripathi, founder and lead editor of Kael Tripton. 22 years in finance and marketing across 23 markets. Writes on UK personal finance, tax, mortgages, insurance, energy, and investing. Sources: HMRC, FCA, Ofgem, BoE, ONS.