What is fiscal drag, and how much does the tax threshold freeze raise?

Fiscal drag is the rise in tax paid when thresholds stay fixed while incomes grow, so more people start paying tax or move into a higher band. The Office for Budget Responsibility explains it in Box 3.3 of its November 2025 Economic and fiscal outlook.

The OBR says the personal allowance and higher-rate threshold have been frozen at £12,570 and £50,270 since 2022-23, and the Budget extended the freeze to 2030-31. Had they risen with inflation, it forecast they would be £4,900 and £20,100 higher by 2030-31. It estimates all threshold freezes together will raise £67 billion in 2030-31, of which £13 billion comes from the freezes announced in that Budget.

These are forecasts that depend on future inflation and earnings, so they change with each OBR outlook. See what the OBR does.

Official sources: OBR: Economic and fiscal outlook, November 2025 · OBR: income tax forecast in depth

Terms used in this answer

• Fiscal drag
  The rise in tax paid when tax thresholds are frozen or rise more slowly than incomes, pulling more income and more people into tax or into higher bands.

Related questions

• What is the personal allowance, and is it frozen?
• How many people pay higher-rate tax in the UK?
• What is the OBR and what does it forecast?

This answer says where the official figures are published and how they are defined. It gives no verdict on any claim. To report an error, send a correction request. More questions about tax rates, allowances and household bills: all Tax rates, allowances and household bills questions.