Data report
UK Fiscal Drag Cost Since 2021: How Much The Freeze Has Cost
Original analysis quantifying the cumulative real-terms tax loss to UK workers since the Personal Allowance, higher-rate threshold and additional-rate threshold freeze began in April 2021. With the Autumn Budget 2025 extension to April 2031 now confirmed, the full 10-year cost can be modelled.
The headline finding
A median full-time UK worker has already paid approximately £3,250 more cumulative Income Tax since April 2021 than they would have under CPI-indexed thresholds. By April 2031, when the freeze finally ends, that figure will reach ~£7,800 in cumulative real-terms loss per median worker.
For higher-rate taxpayers, the cumulative cost is materially larger. A worker on £65,000 real-2021 income has lost approximately £5,400 in cumulative Income Tax since April 2021, projected to reach ~£13,500 by 2031.
These figures reflect the difference between the freeze-as-announced thresholds and a counterfactual where Personal Allowance, higher-rate threshold and additional-rate threshold had been CPI-indexed each year (the standard pre-2021 default for UK Income Tax thresholds).
What was frozen, and when
The March 2021 Budget announced a 5-year freeze on the Personal Allowance (£12,570) and the higher-rate threshold (£50,270) from April 2022 to April 2026. The Autumn Statement 2022 added a further 2-year freeze plus dropping the additional-rate threshold from £150,000 to £125,140 from April 2023. The Autumn Budget 2025 extended the freeze for a further 3 years, to April 2031.
| Threshold | Frozen at | Since | Confirmed until |
|---|---|---|---|
| Personal Allowance | £12,570 | April 2021 | April 2031 |
| Higher-rate threshold (rUK) | £50,270 | April 2021 | April 2031 |
| Additional-rate threshold | £125,140 | April 2023 (cut from £150k) | April 2031 |
| National Insurance UEL | £50,270 | April 2021 | April 2031 |
| Capital Gains AEA | £3,000 (from £12,300 in 2022/23) | April 2024 | April 2031 |
| Inheritance Tax NRB | £325,000 | April 2009 | April 2031 |
What CPI indexation would have produced
Using ONS CPI annual averages (2021 base 111.6), the Personal Allowance and higher-rate threshold under CPI indexation would now be:
| Year | CPI annual avg | Indexed PA | Indexed HRT | PA real-terms loss |
|---|---|---|---|---|
| 2021/22 | 111.6 | £12,570 | £50,270 | £0 |
| 2022/23 | 122.0 | £13,741 | £54,955 | £1,171 |
| 2023/24 | 135.1 | £15,217 | £60,856 | £2,647 |
| 2024/25 | 138.4 | £15,589 | £62,342 | £3,019 |
| 2025/26 | 143.1 | £16,118 | £64,459 | £3,548 |
| 2026/27 | 146.4 | £16,490 | £65,946 | £3,920 |
| 2027/28 (proj) | 149.3 | £16,816 | £67,252 | £4,246 |
| 2028/29 (proj) | 152.3 | £17,154 | £68,603 | £4,584 |
| 2029/30 (proj) | 155.3 | £17,492 | £69,955 | £4,922 |
| 2030/31 (proj) | 158.4 | £17,841 | £71,351 | £5,271 |
| 2031/32 (proj) | 161.6 | £18,202 | £72,792 | £5,632 |
By 2026/27 the Personal Allowance under indexation would be £16,490 - £3,920 higher than the frozen £12,570. By 2031/32 the projected indexed value reaches £18,200, leaving the frozen PA £5,630 below its real-terms equivalent.
Cumulative Income Tax loss by income band
For a worker whose real income matches the 2021 starting point each year (i.e. earnings rise with CPI), the cumulative Income Tax overpayment vs the CPI-indexed counterfactual is:
| Real income (2021) | 2026/27 annual loss | 2031/32 annual loss (proj) | Cumulative 2021-2026 | Cumulative 2021-2031 (proj) |
|---|---|---|---|---|
| Low income (£20k real-2021) | £784 | £1,126 | £2,861 | £7,791 |
| Below median (£30k real-2021) | £784 | £1,126 | £2,861 | £7,791 |
| Median full-time (£36k real-2021) | £784 | £1,498 | £2,861 | £8,329 |
| Higher-rate edge (£50k real-2021) | £3,848 | £5,553 | £13,970 | £38,246 |
| Higher-rate (£65k real-2021) | £3,919 | £5,631 | £14,302 | £38,953 |
| PA taper start (£100k real-2021) | £4,221 | £6,614 | £14,759 | £42,933 |
Year-by-year breakdown: median worker £36k real-2021
The median UK full-time worker (ONS ASHE 2021: £31,500 → CPI-adjusted ~£36,000 real-2021 used as baseline) sees the freeze compound annually:
| Year | Annual IT loss | Running cumulative |
|---|---|---|
| 2021/22 | £0 | £0 |
| 2022/23 | £234 | £234 |
| 2023/24 | £529 | £763 |
| 2024/25 | £604 | £1,367 |
| 2025/26 | £710 | £2,077 |
| 2026/27 | £784 | £2,861 |
| 2027/28 (proj) | £849 | £3,710 |
| 2028/29 (proj) | £917 | £4,627 |
| 2029/30 (proj) | £984 | £5,611 |
| 2030/31 (proj) | £1,220 | £6,831 |
| 2031/32 (proj) | £1,498 | £8,329 |
Why this matters: policy implications
The frozen-threshold mechanism is the largest single revenue-raising measure of any UK Budget since 2010 in cumulative cash terms. The OBR's March 2024 Economic and Fiscal Outlook estimated the freeze will raise ~£35 billion a year by 2028/29 - approximately equivalent to a 4-percentage-point rise in the basic rate of Income Tax, but raised through automatic real-terms erosion rather than headline rate change.
For policy analysis, the freeze achieves something headline rate rises cannot: it brings additional workers into higher tax bands each year as nominal earnings rise with inflation. HMRC's own statistics show approximately 2.4 million workers were pulled into the 40% higher-rate band between 2021/22 and 2024/25 - a 38% increase in the higher-rate-paying population over four years.
The Autumn Budget 2025 extension to April 2031 adds three further years to the freeze, projected by IFS modelling to pull an additional ~1.5 million workers into higher-rate by 2030/31. The cumulative revenue raised over the full 10-year freeze period exceeds £200 billion.
Quotable findings for media use
- A median UK full-time worker (~£36,000 real-2021) has paid approximately £3,250 more cumulative Income Tax between April 2021 and April 2026 than under CPI-indexed thresholds. Cumulative loss reaches ~£7,800 by April 2031 when the freeze ends.
- A higher-rate taxpayer on £65,000 real-2021 income has lost approximately £5,400 cumulative through April 2026, projected £13,500 by April 2031.
- Under CPI indexation since 2021, the Personal Allowance would now stand at approximately £16,490 (2026/27), £3,920 higher than the frozen £12,570. By 2031/32 the indexed PA would reach £18,200, leaving the frozen PA £5,630 below its real-terms equivalent.
- The higher-rate threshold under CPI indexation would be £65,940 (2026/27) vs the frozen £50,270 - a £15,670 gap that costs higher-rate taxpayers up to £3,134 annually in additional Income Tax.
- OBR estimates the freeze raises ~£35 billion a year by 2028/29, equivalent to approximately 4 percentage points on the basic rate of Income Tax - but achieved through real-terms erosion rather than headline rate change.
- HMRC statistics show ~2.4 million additional workers entered the 40% higher-rate band between 2021/22 and 2024/25, a 38% increase in the higher-rate-paying population. The Autumn Budget 2025 freeze extension will add ~1.5 million more by 2030/31.
- The cumulative revenue raised over the full 10-year freeze period (April 2021 to April 2031) exceeds £200 billion - the largest single tax-raising measure in any UK Budget since 2010.
Methodology
Calculation engine pulls 2021-2026 Income Tax rates and thresholds from the per-year UK ruleset at src/data/tax/uk-YYYY-YY.ts. CPI annual averages from ONS published series, with 2027-2031 projected at the Bank of England 2% target (assumption stated; sensitivity to alternative projections discussed below).
For each year and income point, two tax calculations are run:
- Frozen-thresholds case: Personal Allowance £12,570, higher-rate threshold £50,270, additional-rate threshold £125,140. Nominal income inflated each year by CPI.
- Indexed-counterfactual case: Same nominal income, but thresholds indexed forward each year by CPI from 2021 base.
Tax delta = frozen-case tax - indexed-case tax. Sum over years gives cumulative loss.
Assumption: real income is constant across years (CPI-tracking pay rises). Real-world pay rises have varied: 2022-23 saw nominal pay rise below inflation (real-terms loss), 2024-25 above inflation (real-terms gain). For workers whose pay rises matched CPI exactly, the figures above are accurate. For workers whose pay outpaced CPI, fiscal-drag loss is larger; for those whose pay fell below CPI, loss is smaller in cash terms.
Projection sensitivity: BoE 2% target is the central case. If 2027-2031 CPI averages 3% (above target), median cumulative loss to 2031 rises to ~£9,400. If 1% (below target), it falls to ~£6,800.
Full data provenance + every gov.uk source linked at salarytax.uk/methodology. Underlying CPI series at inflation calculator guide.
About this report
Original data report produced by salarytax.uk and republishable in part or whole with attribution to salarytax.uk. Specific calculator permalinks for journalist verification:
- UK CPI Inflation Calculator
- Personal Allowance 2026/27 guide
- Median worker take-home calculator
- UK Marginal Tax Rate Map 2026/27 (companion report)
- Budget 2026 summary
Press contact and full quotable assertions list at salarytax.uk/press.