UK Fiscal Drag 2026-27 — Frozen Thresholds and Their Real Cost
Original analysis: who crosses into higher-rate, additional-rate and the £100k Personal Allowance taper in 2026-27, thresholds frozen to April 2031.
Frozen vs CPI-indexed counterfactual (2026-27)
| Threshold | Frozen 2026-27 | CPI-indexed 2026-27 | Gap |
|---|---|---|---|
| Personal Allowance | £12,570 | £15,150 | £2,580 |
| Higher-rate threshold (above PA) | £50,270 | £60,570 | £10,300 |
| Additional-rate threshold | £125,140 | £178,200 | £53,060 |
| Personal Allowance taper start | £100,000 | £142,400 | £42,400 |
CPI-indexed counterfactual = April 2021 threshold × cumulative ONS CPIH growth April 2021 – April 2026 (≈ +20.6%). Rounded to nearest £10.
OBR estimates (Nov 2022 EFO — original freeze to April 2028)
| Metric | Value |
|---|---|
| Additional taxpayers vs indexation by 2027-28 | ~3.2 million |
| Additional higher-rate taxpayers by 2027-28 | ~2.6 million |
| Additional additional-rate taxpayers by 2027-28 | ~250,000 |
| Annual income tax revenue from freeze by 2027-28 | ~£25.5 billion |
| Implicit equivalent rate rise (basic rate) | ~4p |
All figures from the OBR November 2022 Economic and Fiscal Outlook, which first quantified the cumulative effect of the threshold freezes confirmed in Autumn Statement 2022. This freeze was assumed to end in April 2028 — it did not; see the update below.
Update: freeze extended to April 2031 (Autumn Budget 2025)
Before the original freeze reached its April 2028 end-date, Autumn Budget 2025 extended it a further three years to April 2031, for income tax PA/HRT/ART and the equivalent NIC thresholds. The figures below are the OBR's estimate of the incremental effect of that extension, not a re-statement of the cumulative 2022 figures above.
| Metric | Value |
|---|---|
| Extra basic-rate taxpayers by 2029-30 (vs Mar 2025 forecast) | ~780,000 |
| Extra higher-rate taxpayers by 2029-30 (vs Mar 2025 forecast) | ~920,000 |
| Extra additional-rate taxpayers by 2029-30 (vs Mar 2025 forecast) | ~4,000 |
| Annual revenue from the freeze by 2030-31 | £55bn+ |
From the OBR November 2025 Economic and Fiscal Outlook and the gov.uk policy paper "Maintaining Income Tax and equivalent NIC thresholds until 5 April 2031".
Why the design matters
A 1p basic-rate rise is highly visible — politicians own it, the press reports it, and voters react. A threshold freeze is invisible — tens of billions arrive gradually as wages grow, and no individual paycheck shows a "tax rise" line. Most affected taxpayers will not realise they have been pulled into a higher band until their first April pay rise crosses £50,270 and the change appears in their next tax code (1257L → BR for the over-band portion).
The freeze interacts particularly sharply with the £100,000 Personal Allowance taper. Workers with bonus-driven income (consultants, sales, financial services) crossing into the £100,000-£125,140 band hit a 60% effective marginal rate that didn't exist for them at any prior salary level — see the companion 100k tax trap analysis.
Try the relevant calculators
- Income Tax Calculator — see your liability with frozen thresholds in 2026-27
- Tax Year Comparison — 2026-27 vs 2025-26 take-home
- Personal Allowance Real Terms research — companion analysis on PA erosion since 2010
- 100k Tax Trap by Salary research — effective marginal rate curve
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