Copy article

Fiscal Drag Is Doing The Work Of A Budget

ended 22. July 2026

The tax take is climbing fast, and almost none of it comes from a new headline rate. HMRC's figures for April to June 2026, published on 21 July, show total receipts of £227.7 billion, up £16.6 billion on the same three months last year. Income Tax, Capital Gains Tax and National Insurance together brought in £132.1 billion, up £11.4 billion, roughly 9 per cent more, with barely a change to the rates people actually pay. This is fiscal drag. Freeze the thresholds, and rising wages, asset values and prices quietly pull more people, and more of their money, into tax without a single rate going up. It is a tax rise nobody voted for and nobody stood up to announce. Inheritance Tax brought in £2.3 billion, up £96 million, with June's receipts the highest monthly total on record, even though the £325,000 nil-rate band has been frozen since 2009, so it is house-price growth, not new wealth, dragging ordinary estates over the line. Business taxes jumped 15 per cent to £24.1 billion, up £3.1 billion, and stamp taxes rose 11 per cent to £5.1 billion. The people caught are not the very wealthy, who plan around it. They are the family whose modest home has quietly outgrown a frozen threshold, and the small firm watching more of its cashflow go to the taxman while nothing changes on paper.

  1. Receipts are rising sharply while headline rates barely move. Is fiscal drag a legitimate way to raise money, or a stealth tax rise that dodges accountability?
  2. With Inheritance Tax at a record and business taxes up 15 per cent, who is hit hardest by frozen thresholds, and is it fair that a bigger bill lands on people who did nothing differently?
  3. What should ordinary families and small firms do now to plan around frozen thresholds rather than wait for the next Budget? Do you have a client whose plans this would change? If so, please give as much colour and detail as possible.

7 responses from the Newspage community

Copy all

Star Quote
Copy

Editor
Harvey Dhillon
Founder & CEO at Zmartly
Why is the tax take climbing this fast when almost no headline rate has changed? Because frozen thresholds do the work quietly. As wages, house prices and estates rise, more people and more of their money cross frozen lines, and the bill rises without anyone voting for it. HMRC collected £227.7 billion in the three months to June, £16.6 billion more than a year ago, with June's Inheritance Tax receipts the highest on record even though the £325,000 threshold has been frozen since 2009. The people caught are not the wealthy, who plan around it. They are the family whose ordinary home outgrew a frozen band, and the small firm watching business taxes jump 15 per cent. So do not wait for a Budget to act. Use this year's allowances, keep cost records, and review your estate while the rules are known. The number that matters is not the rate, which barely moved. It is the £16.6 billion the same old rules quietly collected.
Copy

Editor
Graham Nicoll
Financial Planner, Chartered FCSI at NCL Wealth Partners
Fiscal drag is a politically convenient way to increase tax receipts. Governments can claim they haven't raised tax rates, while frozen thresholds quietly mean millions pay more tax each year. It keeps headline commitments intact but delivers tax rises through the back door, reducing transparency and accountability.

The hardest hit are middle-income families, business owners and those with appreciating property rather than the ultra-wealthy, who often have access to sophisticated tax planning. Many people haven't become richer in real terms, they've simply been caught by outdated thresholds.

The UK's finances need repairing, but relying on stealth taxes isn't a long-term strategy. Alongside measures to boost growth, government should tackle welfare reform, improve public sector productivity and address the long-term cost of public sector pensions. Meanwhile, families and business owners should maximise pensions, ISAs and other available tax allowances before more value is lost.
Copy

Editor
Antonia Medlicott
Founder & MD at Investing Insiders
HMRC’s latest figures highlight that the biggest tax rises in Britain are no longer announced at the Dispatch Box. Fiscal drag is clearly a stealth tax; the hardest hit people wouldn’t consider themself wealthy. A wage increase which is already eaten up by energy and food shops also benefits the Treasury, but doesn’t leave the individual anything spare for treats or to save.

Inheritance Tax is arguably the worst for this, as the nil-rate band has remained at £325,000 since 2009. Average house prices were £154,832 in December 2009, but have increased to £270,080 in April this year. Estates that would never previously have faced an Inheritance tax bill are gradually being pulled into the system simply because asset prices have risen around them.

Tax planning matters. Families should review their use of tax allowances, ISAs, pension contributions and Inheritance tax exemptions. Acting before fiscal drag catches you is far more effective than trying to undo the tax bill afterwards.
Copy

Editor
Tony Redondo
Founder at Cosmos Currency Exchange
Fiscal drag is the back-door tax rise enabling politicians to say, "I won't raise this tax," then raise it anyway by freezing thresholds. It's replaced legislation as the Treasury's favourite way to harvest billions without a vote. Frozen thresholds quietly drag rising wages, business revenues and asset values into higher brackets. The burden lands hardest on squeezed middle-earners and growing SMEs, not the wealthy, who plan around it. Modest family homes now routinely breach the long-frozen £325,000 Inheritance Tax threshold; ordinary pay rises push workers past cliff-edges at £50k and £100k; small firms face rising employment costs just to hold onto staff. Families and businesses can't wait for a policy announcement that may never come, they need to act now. Maximise ISA and pension allowances, use salary sacrifice, and optimise corporate remuneration to shield margins before the tax take expands evermore.
Copy

Editor
Paul Denley
CEO at Oakham Wealth Management
Fiscal drag is the Chancellor’s favourite tax rise because no one has to own it. Freeze the thresholds, let wages, house prices and inflation do the work, and receipts rise while the rate card barely moves. That is a rise by stealth, and accountability is the casualty.

The squeeze bites hardest in the middle: around income of £100,000, where the tapered personal allowance creates a brutal effective marginal rate, and for families whose childcare support can disappear just as costs are rising. The very wealthy can often plan around it; middle income households and small firms have fewer levers.

So don’t wait for the Budget. Use allowances early, fund pensions and ISAs where suitable, and make sure gifts, dividends and company drawings are structured properly within the rules. Frozen thresholds won’t move, so planning has to move first.
Copy

Editor
Kate Underwood
Founder & Chief People Strategist at Kate Underwood HR and Training
Don't sit and wait for the Budget to save you. It won't. Frozen thresholds punish the people who do nothing. So do something. Small firms: know your numbers. Work out the real cost of every hire, claim every allowance you are owed, and get a good accountant in your corner. They pay for themselves. Look hard at pensions and salary sacrifice too. They are legal, sensible ways to soften the blow for you and your staff. Families: check where you sit against the thresholds before they drag you over. Use your ISA and pension allowances. If your home has quietly pushed your estate over the inheritance line, get advice now, not when it is too late. The wealthy plan around this in their sleep. Ordinary people can too. They just have to look before the bill lands, not after. The taxman is counting on you doing nothing. Prove him wrong.
Copy

Editor
Samuel Mather-Holgate
Managing Director & IFA at Mather and Murray Financial
Fiscal drag is the Treasury’s silent mugging. No minister has to announce a painful tax rise, but households and small firms still feel the money leaving their pockets. Freezing thresholds while wages, prices and house values rise is not fiscal discipline; it is a stealth tax that relies on people not noticing until the bill lands.

The cruelty is that it does not mainly punish people doing something extravagant. It catches families whose home has risen in value, workers whose pay has merely chased inflation, and small businesses trying to keep cashflow moving. The very wealthy can plan around the edges. Ordinary people get dragged over the line.

Families should not wait for the next Budget. They need to review pensions, ISAs, gifting, estate plans and business structures now, because frozen thresholds turn delay into a tax strategy for HMRC.