Three million additional workers in the United Kingdom have been pushed into higher income tax brackets over the past five years, a direct consequence of the government’s decision to freeze income tax thresholds since 2021.
The policy, often referred to as fiscal drag, means that as wages rise with inflation, more earners cross the threshold for the 40% higher-rate tax without any corresponding adjustment to the tax bands.
This structural shift has significantly increased the tax burden on middle-income households, effectively acting as a stealth tax hike that reduces disposable income across a broad segment of the workforce.
The impact of this policy is becoming increasingly visible in household finance data, as real wage growth struggles to keep pace with the rising tax liability.
While nominal wages have increased, the erosion of purchasing power due to higher tax contributions has left many workers feeling the pinch.
The freeze on thresholds has been a key component of the government’s fiscal strategy, aimed at boosting revenue without explicitly raising tax rates.