What is fiscal drag?
Fiscal drag is when tax thresholds stay frozen while wages and prices rise. More people then pay tax, or pay a higher rate, without any change in tax rates. It is often called a stealth tax. UK income tax thresholds have been frozen since 2021 and are now set to stay frozen until April 2031.
Normally tax allowances rise with inflation each year. When they are frozen, a pay rise that only keeps up with prices pushes part of your income into a taxed band. The personal allowance has been stuck at £12,570 and the higher rate threshold at £50,270 since April 2021. In the November 2025 Budget the freeze was extended again, to April 2031.
The effect is large because it builds up year after year. Millions of people have been pulled into paying income tax for the first time, and millions more into the 40% higher rate. Workers such as experienced nurses, teachers and police officers now often pay higher rate tax. Fiscal drag also hits other frozen thresholds. These include the inheritance tax nil-rate band and the £100,000 point where the personal allowance starts to be withdrawn.
Governments like fiscal drag because it raises billions without announcing a rate rise, which is politically easier. Economists note that it is less transparent than changing a rate. It also hits lower earners hardest in relative terms, because the personal allowance is worth more to them. When inflation is high, as in 2022 and 2023, the effect grows much faster. Few voters notice it on any single payslip.
Who it affects: Every taxpayer as wages rise
Some on the left accept frozen thresholds as a way to fund services, but many prefer openly taxing wealth and high incomes instead.
The right generally criticises fiscal drag as a hidden tax rise that breaks promises not to raise taxes and weakens incentives to work.
Britain is split. Now you decide.
In WeDecide you can keep or end the threshold freeze in your Budget and see the cost to the Treasury and voters.
Play WeDecide freeCommon questions
How long are income tax thresholds frozen?
They have been frozen since April 2021 and are now due to stay frozen until April 2031.
Why is it called a stealth tax?
Because tax revenue rises without any headline tax rate being changed.
Who does fiscal drag affect most?
Everyone who earns near a threshold, especially people pushed past £12,570, £50,270 or £100,000.