Budget 2026: frozen tax thresholds and fiscal drag
Autumn Budget 2026 kept headline Income Tax rates on earnings unchanged. Many people still feel a rising tax share of their pay over time. That effect is usually called fiscal drag (or “stealth tax” in newspaper shorthand): thresholds freeze while cash wages rise with inflation or promotions.
What is frozen?
For England, Wales and Northern Ireland, the key cash figures for 2026/27 (and through the extended freeze window set in previous Budgets) remain:
- Personal Allowance: £12,570
- Basic-rate limit: £37,700 of taxable income → higher-rate threshold £50,270 of gross earnings for many employees
- Additional-rate threshold: £125,140
National Insurance Primary Threshold and Upper Earnings Limit stay aligned with those Income Tax points in the freeze framework.
Scotland sets its own bands for non-savings income — check Scottish Budget documents separately.
Rates unchanged ≠ take-home unchanged
Suppose you earn £48,000 and receive a 4% rise to about £49,920. You are still a basic-rate taxpayer on most of your pay, but:
- A larger slice sits above the Personal Allowance.
- You edge closer to (or into) the 40% band.
- Employee NI still applies above the Primary Threshold.
None of that required the Chancellor to stand up and say “I am raising the basic rate.” Frozen thresholds do the work quietly.
Budget 2026’s political message was “no broad-based tax rises” on earnings rates. The freeze extension already announced previously remains the structural backdrop for PAYE workers.
The £100,000 taper still bites
Above £100,000, the Personal Allowance is withdrawn by £1 for every £2 of income. Between roughly £100,000 and £125,140, effective marginal rates can feel much higher than 40%. Budget 2026 did not remove that taper.
Use the salary calculator to see how allowance taper and band crossings change net pay.
What Budget 2026 changed instead
Rather than rewriting earnings rates, the Budget emphasised:
- Household energy support and fuel duty timing
- Keeping the £20,000 cash ISA limit
- Higher tax on savings and property income from April 2027
- National Living Wage uprating
See the Budget overview and Am I better off? for those levers.
Practical checks
- Project next year’s gross pay, not just this month’s net.
- Watch the £50,270 and £100,000 cliffs when negotiating salary or bonuses.
- Compare salary sacrifice pension contributions if your employer offers them — they can reduce taxable pay (explained here).
- Re-run FinPlanly illustrations after each Budget; we version figures in one UK rules file.
Disclaimer
Educational summary only. Thresholds and Scottish rates can change with later Finance Bills or devolved decisions — confirm on gov.uk before acting.
