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Fiscal drag: how frozen thresholds raise tax without a rate rise
Income Tax thresholds have been frozen since April 2021, and the law keeps them frozen until April 2031. What the official figures show about the effect on your tax.
At a glance
The personal allowance has been £12,570 and the higher-rate threshold £50,270 since April 2021, and the law now keeps both frozen until April 2031. Pay keeps rising while the thresholds stand still, so more people pay Income Tax and more pay it at 40%: HMRC projects 7.70 million higher-rate taxpayers in 2026 to 2027, against 4.43 million in 2021 to 2022.
The OBR forecasts that the freezes will raise £56 billion of Income Tax in 2030 to 2031. Not all of the rise in taxpayers is down to the freeze, and the next official forecasts come with the Budget on 28 October 2026.
Key figures
- £12,570Personal allowance. Frozen at its April 2021 level; UK-wide2021 to 2022 until 2030 to 2031 · Set in law · Source [1], [2]
- £50,270Higher-rate threshold. England, Wales and Northern Ireland; also where employees' main National Insurance rate stops2021 to 2022 until 2030 to 2031 · Set in law · Source [3]
- 4.43 millionHigher-rate taxpayers2021 to 2022 · Outturn · Source [6]
- 7.70 millionHigher-rate taxpayers2026 to 2027 · Projection · Source [4]
- £56 billionIncome Tax raised by the freezes. Includes the extension announced in November 20252030 to 2031 · Forecast · Source [7]
- £16,080Personal allowance had it kept rising with prices. Hypothetical: not a real threshold2026 to 2027 · PayCalc calculation · Source [9], [13]
What has been frozen, and until when
The personal allowance, the income you can have before Income Tax starts, is £12,570. In England, Wales and Northern Ireland the basic rate band above it is £37,700 wide, so 40% tax starts at £50,270. Both last rose with inflation in April 2021.
The law normally raises them each April in line with the Consumer Prices Index (CPI). Parliament has switched that off three times:
- Finance Act 2021 fixed them for the tax years 2022 to 2023 up to 2025 to 2026.
- Finance Act 2023 extended the freeze to 2027 to 2028. From April 2023 the additional-rate threshold, where 45% tax starts, was also cut from £150,000 to £125,140.
- Finance Act 2026 extended the freeze again, to 2030 to 2031.
National Insurance follows the same thresholds. Employees start paying it at £12,570, and its main rate stops at £50,270; the government plans to keep both there until 2030 to 2031. Scotland sets its own Income Tax bands on earnings, but the personal allowance is UK-wide, so the freeze reaches Scottish taxpayers too.
How a freeze raises tax when rates stay the same
When thresholds rise with prices, a pay rise that only keeps up with inflation leaves your tax much as it was in real terms. When they are frozen, every pound of a rise lands above the same allowance, and some of it can cross into a higher band. This is fiscal drag: more tax without any change in the rates.
Someone on £40,000 in 2024/25 pays £5,486.00 of Income Tax and £2,194.40 of National Insurance. If their pay reaches £42,000 in 2026/27, they pay £5,886.00 and £2,354.40.
The rates did not change between those years, and neither did the allowance. So of the rise, £400.00 goes in Income Tax and £160.00 in National Insurance, and they keep £1,440.00. Had the allowance kept rising with prices, more of their pay would be tax-free.
Where the thresholds would be if they had kept up with prices
Had the normal CPI uprating carried on after April 2021, our calculation puts the personal allowance at £16,080 in 2026 to 2027, and the higher-rate threshold at £64,480. These are not real thresholds. They show how far the frozen ones have fallen behind prices. The actual thresholds were £12,570 and £50,270 in every one of these years.
| Tax year | CPI rate used | Personal allowance | Higher-rate threshold |
|---|---|---|---|
| 2022 to 2023 | 3.1% (September 2021) | £12,960 | £51,860 |
| 2023 to 2024 | 10.1% (September 2022) | £14,270 | £57,170 |
| 2024 to 2025 | 6.7% (September 2023) | £15,230 | £61,030 |
| 2025 to 2026 | 1.7% (September 2024) | £15,490 | £62,090 |
| 2026 to 2027 | 3.8% (September 2025) | £16,080 | £64,480 |
Looking ahead, the OBR forecasts that by 2030 to 2031 the personal allowance will be £4,900 lower, and the higher-rate threshold £20,100 lower, than if both had risen with inflation.
How many more people pay tax, and at higher rates
HMRC counts Income Tax payers by the highest rate they pay. Its figures are outturn up to 2023 to 2024 and projections after that.
Solid bars are outturn and hatched bars HMRC projections. Source: HMRC, Income Tax liabilities statistics (June 2024, June 2025 and July 2026 releases).
| Tax year | All taxpayers | Higher rate | Additional rate | Basis |
|---|---|---|---|---|
| 2021 to 2022 | 33.0 million | 4.43 million | 520,000 | Outturn |
| 2022 to 2023 | 34.5 million | 5.10 million | 570,000 | Outturn |
| 2023 to 2024 | 36.7 million | 5.76 million | 893,000 | Outturn |
| 2024 to 2025 | 38.6 million | 6.60 million | 1.11 million | Projection |
| 2025 to 2026 | 39.8 million | 7.29 million | 1.22 million | Projection |
| 2026 to 2027 | 40.8 million | 7.70 million | 1.29 million | Projection |
The additional-rate count has more than doubled over the same years, partly because its threshold was cut in April 2023. But these counts also grow with pay, the number of people in work and the population, so they do not show the freeze on its own.
To isolate the freeze, the OBR compares its forecast with one in which thresholds rise with inflation. In November 2025 it estimated that between 2022 to 2023 and 2030 to 2031 the freezes will bring 5.2 million more people into Income Tax, move 4.8 million more onto the higher rate and 600,000 more onto the additional rate. It expects the share of taxpayers paying the higher or additional rate to rise from 15% in 2021 to 2022 to 24% in 2030 to 2031.
In March 2026 the OBR added that HMRC's updated modelling of people whose main income is the State Pension raises the number brought into tax by 600,000 in 2026 to 2027 and 1 million in 2030 to 2031. Most of them are expected to pay only small amounts.
How much the freezes raise
The OBR forecasts that the Income Tax freezes will raise £35.2 billion in 2026 to 2027 and £56 billion in 2030 to 2031, including the extension announced in November 2025. With the frozen National Insurance thresholds, it puts the total at £67 billion in 2030 to 2031. By its estimate, frozen thresholds are the biggest single reason taxes rise as a share of the economy this decade.
What this means for you
- Frozen thresholds are worth less each year as prices rise. If your pay keeps up with prices, a growing share of it is taxed, and a rise can take you into a higher band sooner than it would if the thresholds had kept up too.
- If a rise takes your income past £50,270, the part above it is taxed at 40% in England, Wales and Northern Ireland. Pension contributions made through salary sacrifice reduce the pay that is taxed: our salary sacrifice guide explains how.
- The take-home pay calculator works out your own figures under the real 2026/27 rules. It does not model thresholds that kept rising: those figures above are an illustration only.
See the worked example, or start from your own salary.
Sources and method
Taxpayer numbers are HMRC's counts of UK Income Tax payers by the highest rate of tax they pay. HMRC estimates them from its Survey of Personal Incomes, a sample of tax records, and rounds them. Figures for 2021 to 2022, 2022 to 2023 and 2023 to 2024 are outturn: each comes from the first release with that year's survey data (June 2024, June 2025 and July 2026). Figures for 2024 to 2025 to 2026 to 2027 are HMRC projections from its July 2026 release, based on the OBR's March 2026 forecast. HMRC's basic-rate group includes savers-rate payers and Scottish starter and intermediate rate payers.
The counts rise with pay, employment and population as well as with the freeze, so they do not show the freeze's effect on its own. The OBR's figures do: in its November 2025 outlook it compares its forecast with one where thresholds rise with inflation from 2022 to 2023. The OBR calls all of these figures forecasts, even for past years, because a policy's effect can't be measured directly. They are in cash terms and change with each new forecast.
The thresholds 'had they kept rising with prices' are PayCalc's calculation, not real thresholds. We start from the 2021 to 2022 personal allowance of £12,570 and basic rate band of £37,700. Each year we apply the published CPI rate for the 12 months to the September before, from the ONS: 3.1%, 10.1%, 6.7%, 1.7% and 3.8% for 2022 to 2023 through 2026 to 2027. We round as the Income Tax Act 2007 does when indexation applies: the allowance's increase up to the next £10 (section 57) and the band up to the next £100 (section 21). The same method turns 2020 to 2021's £12,500 and £37,500, with September 2020's 0.5%, into 2021 to 2022's actual £12,570 and £37,700.
The worked example uses PayCalc's take-home pay calculator with the 2024/25 and 2026/27 rules for England, Wales and Northern Ireland: tax code 1257L, no pension, no student loan and no other income. Income Tax and National Insurance rates were the same in both years. We checked the figures by hand: Income Tax is 20% and employee National Insurance 8% of pay above £12,570.
What the figures don't show: how much more tax any one person pays because of the freeze, and how the freeze compares with other ways of raising the same money. Thresholds in Scotland's own Income Tax bands are set separately.
- legislation.gov.uk, Finance Act 2021, section 5: Basic rate limit and personal allowance for future tax years (as amended) ↗. Accessed 10 October 2026.
- legislation.gov.uk, Finance Act 2026, section 10: Basic rate limit and personal allowance for tax years 2028-29 to 2030-31 ↗. Published 18 March 2026. Accessed 10 October 2026.
- HM Revenue & Customs, Income Tax: Maintaining the Personal Allowance and the basic rate limit for Income Tax, and equivalent National Insurance contributions thresholds until 5 April 2031 ↗, Tax information and impact note. Published 26 November 2025. Accessed 10 October 2026.
- HM Revenue & Customs, Income Tax liabilities statistics: tax year 2023 to 2024 to tax year 2026 to 2027 ↗, Summary statistics, Figure 1: Income Tax payers by marginal rate. Published 15 July 2026. Accessed 10 October 2026.
- HM Revenue & Customs, Income Tax liabilities statistics: tax year 2022 to 2023 to tax year 2025 to 2026 ↗, Summary statistics, Figure 1: Income Tax payers by marginal rate. Published 26 June 2025. Accessed 10 October 2026.
- HM Revenue & Customs, Income Tax liabilities statistics: tax year 2021 to 2022 to tax year 2024 to 2025 ↗, Summary statistics, Figure 1: Income Tax payers by marginal rate. Published 27 June 2024. Accessed 10 October 2026.
- Office for Budget Responsibility, Economic and fiscal outlook – November 2025 ↗, Box 3.3: Implications of personal tax threshold freezes, including Table A. Published 26 November 2025. Accessed 10 October 2026.
- Office for Budget Responsibility, Economic and fiscal outlook – March 2026 ↗, Paragraph 3.11. Published 3 March 2026. Accessed 10 October 2026.
- Office for National Statistics, CPI annual rate 00: all items 2015=100 (series D7G7) ↗, September rates, 2020 to 2025. Published 16 September 2026. Accessed 10 October 2026.
- GOV.UK, Income Tax rates and Personal Allowances ↗. Accessed 10 October 2026.
- GOV.UK, National Insurance rates and categories ↗, Contribution rates, 2026 to 2027. Accessed 10 October 2026.
- HM Revenue & Customs, Rates and thresholds for employers 2024 to 2025 ↗, Class 1 National Insurance rates. Accessed 10 October 2026.
- legislation.gov.uk, Income Tax Act 2007, section 57: Indexation of allowances ↗. Accessed 10 October 2026.
- legislation.gov.uk, Income Tax Act 2007, section 21: Indexation of the basic rate limit and starting rate limit for savings ↗. Accessed 10 October 2026.
This article is general information, not financial advice. Check your own position before you act.