#fiscal-drag

#fiscal-drag

After Wednesday's Budget, the chancellor Rachel Reeves is keen to point out that she hasn't raised taxes for working people, but if you look at the figures, we're all gradually paying more tax due to the government's clever use of fiscal drag. It all began back in 2021 when the Conservative Party froze the thresholds at which you start paying basic-rate and higher-rate income tax.

This Budget creates a perfect storm for employment costs. Extending income tax and national insurance threshold until 2030-31, and the introduction of a £2,000 cap on national insurance relief from 2029 for pension salary sacrifice means businesses face a compound burden that will reshape hiring and retention strategies. What makes this particularly challenging is the timing. Employers are simultaneously preparing for the Employment Rights Bill changes and the Fair Work Agency's launch in April 2026.