Why does the income tax freeze on allowances hit the poor harder

9th January 2026

The freeze on income tax allowances hits poorer households harder because it drags low earners into paying tax sooner, reduces the real value of their tax-free income, and erodes their disposable income more severely than for wealthier groups. This effect, known as fiscal drag, disproportionately impacts those on modest wages who feel inflation and rising living costs most acutely.

Why the Freeze Hurts the Poor More

1. Fiscal Drag Explained
Personal allowance (the amount you can earn before paying tax) has been frozen at £12,570 since 2021/22 and will remain frozen until at least 2028-29.

Normally, allowances rise with inflation, protecting low earners. Freezing them means as wages rise (often just keeping pace with inflation), more income becomes taxable.

This is a stealth tax: people pay more tax without headline rate increases.

2. Impact on Low Earners
Low-income workers are more likely to cross the tax threshold for the first time. Someone earning just above £12,570 now pays tax, whereas previously they might not have.

Inflation pushes wages up nominally, but without allowance increases, the real value of tax-free income shrinks.

For households already struggling with food, rent, and energy costs, even small tax increases reduce disposable income significantly.

3. Why It's Regressive
Higher earners already pay tax on most of their income, so the frozen allowance is a smaller proportion of their total earnings.

For poorer households, the allowance represents a larger share of income. Losing part of it has a bigger relative impact.

Example:

A worker earning £13,000 now pays tax on £430.

A worker earning £50,000 pays tax on £37,430. The extra £430 taxed is negligible for them, but significant for the low earner.

Risks & Trade-offs
Hidden burden
Because it's not a headline tax rise, many don't notice until pay slips show reduced take-home pay.

Inflation effect
Rising prices mean the poor need every penny, but fiscal drag takes more from them.

Policy choice
Governments prefer freezes because they raise revenue quietly, but critics argue it undermines fairness.

The income tax allowance freeze is regressive: it hits the poor harder because it erodes the value of their tax-free income, drags them into taxation earlier, and reduces disposable income at a time when inflation already squeezes living standards. Wealthier households feel the effect too, but proportionally it's far less damaging.

Worked Example: Comparing £15k vs £50k Income
Assumptions
Personal allowance frozen at £12,570 (instead of rising with inflation).

Basic tax rate: 20%.

Inflation pushes wages up by ~5% per year.

Case 1: Low Earner (£15,000)
Taxable income = £15,000 − £12,570 = £2,430.

Tax paid = 20% × £2,430 = £486.

If allowance had risen with inflation (say to £13,200), taxable income = £1,800 → tax = £360.

Extra tax due to freeze = £126.

That's nearly 1% of total income lost, which is significant when margins are tight.

Case 2: Higher Earner (£50,000)
Taxable income = £50,000 − £12,570 = £37,430.

Tax paid = 20% × £37,430 = £7,486.

If allowance had risen to £13,200, taxable income = £36,800 → tax = £7,360.

Extra tax due to freeze = £126 (same cash amount as the low earner).

But here it’s only 0.25% of total income — barely noticeable compared to overall earnings.

Why This Matters
Both earners lose the same cash amount (£126), but for the low earner it’s a much bigger slice of their disposable income.

This is why economists call the freeze regressive: it takes proportionally more from those at the bottom.

Combined with inflation (higher food, rent, energy costs), the poor feel the squeeze far more.

Key takeaway: Freezing allowances is a stealth tax that raises the same cash from everyone, but the poor lose a larger share of their income — making it regressive in practice.