Fiscal drag is the silent tax rise that happens when wages grow with inflation but tax thresholds stay frozen. More of each worker's pay enters higher tax bands, so the average effective tax rate climbs even though Parliament hasn't voted to raise rates. The Office for Budget Responsibility tracks it explicitly in every EFO .

Which UK thresholds are currently frozen?

The four key income-tax thresholds — Personal Allowance (£12,570), higher-rate threshold (£50,270), additional-rate threshold (£125,140), and Personal Allowance taper start (£100,000) — are frozen until April 2028. Confirmed in Autumn Statement 2022 and reaffirmed in Spring Budget 2024. The IHT nil-rate band (£325,000) and residence nil-rate band (£175,000) are also frozen, separately, until April 2030.

Why does freezing matter more than a rate rise?

A 1p rate rise is visible — politicians own it and voters react. A freeze is invisible — it raises the same revenue over a few years but never appears in a Budget headline. The OBR estimates the income-tax freeze alone raises approximately £25.5 billion/year by 2027-28, comparable to a ~4p basic-rate rise, with no political cost.

Who is most affected?

Workers with rising wages who cross thresholds. The biggest cohort is the 2.6 million people pulled into higher-rate (40%) tax — typically dual-income households, public-sector pay-band climbers, and anyone whose nominal wage grew with inflation. The 250,000 pulled into additional-rate (45%) and the larger group hitting the 100k taper feel the sharpest individual marginal-rate jumps.

Where do the CPI-indexed counterfactual figures come from?

Apply ONS CPIH growth from 2021-22 (the last year of pre-freeze indexation) through to 2026-27. Cumulative CPIH inflation from April 2021 to April 2026 is approximately +20.6%. Each frozen threshold × 1.206 gives the CPI-indexed equivalent. We round to the nearest £10 in the table.

Will fiscal drag end after April 2028?

The current legislated position is that thresholds rise with CPI from April 2028. The OBR's baseline assumes this. Whether the next government extends the freeze (a politically attractive way to fund spending without an explicit rate rise) is unknown. Watch for any Budget statement that pushes the freeze further out — that is the de-facto tax rise to track.

Is the National Insurance threshold also frozen?

Yes. The Class 1 Primary Threshold and Upper Earnings Limit are aligned with income tax PA / HRT respectively, so they share the same freeze through April 2028. Class 4 thresholds for the self-employed are similarly frozen at £12,570 / £50,270.

Can I cite this analysis?

Yes. Published under CC-BY 4.0 with attribution. Underlying inputs are all from gov.uk , ONS , and the OBR Nov 2022 EFO .

UK Fiscal Drag 2026-27 — Frozen Thresholds and Their Real Cost

Original analysis of fiscal drag in 2026-27: how many taxpayers cross into higher-rate, additional-rate, and the £100k Personal Allowance taper because thresholds are frozen until April 2028. OBR-aligned figures with CPI-indexed counterfactual.

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)

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.

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 — the £25.5bn/year arrives 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

Re-publishable under CC-BY 4.0. Please link back to this URL so corrections propagate.

UK Fiscal Drag 2026-27 — Frozen Thresholds and Their Real Cost

Frozen vs CPI-indexed counterfactual (2026-27)

OBR estimates (Nov 2022 EFO)

Why the design matters

Try the relevant calculators

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