Fiscal drag occurs when workers are pulled into higher tax brackets due to HMRC allowances being frozen over an extended period of time
Millions of Britons are forecast to pay more tax as part of a hidden HM Revenue and Customs (HMRC) raid, economists warn.
The ranks of higher-rate taxpayers in Britain are set to swell dramatically, according to fresh HMRC data projecting 7.7 million people will fall into this bracket during the 2026/27 tax year.
This marks a substantial expansion from the 4.43 million individuals paying the higher rate just five years earlier in 2021/22.
The figures represent an increase of approximately 3.27 million people, equivalent to a 74 per cent rise over the period.
Those paying the additional rate of tax are similarly expected to surge, with projections indicating numbers will more than double across four years.
The phenomenon driving this expansion is fiscal drag, whereby frozen tax thresholds gradually push workers into higher bands as wages rise with inflation.
Since 2021, HMRC records have registered the four largest annual increases in higher-rate taxpayers ever documented.
While growing incomes and population changes have contributed to the trend, the decision to hold tax thresholds steady has played a particularly significant role.
Millions of employees earning what feels like a modest salary now face tax rates that were previously the preserve of substantially wealthier individuals.
Marianna Hunt, personal finance expert at Fidelity International, commented on the shifting landscape: "Higher-rate taxpayers are no longer a small group of top earners.
"Because of frozen tax thresholds, millions of workers bringing home what probably feels like a relatively normal income are now paying rates of tax that would once have been reserved for much higher earners."
Ms Hunt described the transformation as dramatic, noting that the tax environment has fundamentally altered in recent years.
The expert emphasised that many affected individuals have not suddenly become wealthy, but rather find themselves caught by thresholds that have failed to keep pace with earnings growth.
Despite the growing tax burden, legitimate strategies exist to mitigate the impact. Ms Hunt highlighted pension contributions as particularly effective, explaining that they simultaneously build retirement funds while reducing taxable income.
She advised: "If you've only recently become a higher-rate taxpayer, increasing your pension contributions could bring some of your income back below the higher-rate threshold."
Maximising ISA allowances offers another avenue, protecting future investment returns and income from taxation, according to the investment expert.
