Frozen National Insurance Thresholds: How Fiscal Drag Erodes Pay Rises in 2026/27

National Insurance's two frozen thresholds

Employee National Insurance in 2026/27 works around two fixed points: the £12,570 primary threshold, below which no NI is due, and the £50,270 upper earnings limit, above which the NI rate drops from 8% to 2%. Both figures have been held at the same cash value for several tax years running, rather than rising each year with inflation or average wage growth the way they once did. That freeze is the entire mechanism behind NI fiscal drag — nothing about the 8% or 2% rates has changed; what's changed is how much of a growing salary now falls either side of these fixed lines.

What fiscal drag means in practice for NI

Fiscal drag is not a new tax and involves no rate change or Budget announcement to take effect. It's a mechanical consequence of holding a threshold still while pay rises around it. Someone getting an inflation-matching pay rise this year, exactly the same percentage rise as last year, will typically see slightly more of that rise absorbed by tax and NI than they did in a year when thresholds moved with wages — simply because the frozen £12,570 and £50,270 lines stay exactly where they were, while their salary moves further past them each year.

Worked example: an inflation-matching pay rise

Take an employee earning £45,000 in the previous tax year who receives a 6% pay rise, taking their salary to £47,700 in 2026/27 — a rise intended simply to keep pace with inflation, not a promotion or genuine increase in living standards.

Because the £12,570 threshold hasn't moved, the entire £2,700 pay rise falls into the 8% NI band — the same band it would have fallen into last year, except last year's frozen threshold was already eating into a larger share of a smaller salary too. The NI-as-percentage-of-salary figure creeps upward year on year purely because the threshold stays fixed while the salary grows around it — even though the 8% rate itself never changed. Model your own numbers with

and see the combined income tax and NI effect with .

The same mechanism hits income tax simultaneously

The £12,570 NI primary threshold is numerically identical to the frozen Income Tax Personal Allowance, and both have been frozen using the same underlying government policy. This means a single pay rise experiences fiscal drag twice over, from the same £12,570 starting point — more of the rise sits above the Personal Allowance for income tax purposes, and more of it sits above the primary threshold for NI purposes, at the same time. The £50,270 figure plays a similar dual role, marking both the NI upper earnings limit and the income tax higher-rate threshold.

Comparing 2026/27 to a hypothetical uprated scenario

It can help to see, side by side, roughly how much more NI is paid under the frozen thresholds compared to a hypothetical scenario where the £12,570 and £50,270 figures had instead risen broadly in line with average wage growth over the freeze period. This isn't an official government estimate and shouldn't be read as one — it's simply illustrative of the direction and rough scale of the effect:

The direction of the effect is unambiguous — frozen thresholds mean more NI is paid on a given nominal salary than uprated thresholds would produce — even though the exact pound-for-pound difference depends on assumptions about how much thresholds would otherwise have risen, which is inherently uncertain and not something this article attempts to quantify precisely.

Self-employed profits see the same effect

Self-employed people paying Class 4 National Insurance face an equivalent structure — 6% on profits between £12,570 and £50,270, 2% above — built around the same frozen thresholds. A self-employed person whose profits grow year on year, even by no more than inflation, sees a growing share of that profit fall into the 6% Class 4 band for exactly the same reason an employee's PAYE income does: the threshold underneath the rate hasn't moved, while the profit above it has grown. Check your own position with

alongside .

A second worked example: crossing the upper earnings limit

The £45,000-to-£47,700 example earlier stays entirely within the 8% NI band. It's also worth looking at what happens to someone whose pay rise pushes them past £50,270 for the first time, since this is where NI and income tax pull in different directions.

Take an employee on £49,000 who receives a £3,000 rise, taking them to £52,000:

The £1,730 slice above £50,270 is taxed at a combined 42% (40% income tax + 2% NI) rather than the 28% combined rate (20% income tax + 8% NI) that applied to income below the threshold. Because £50,270 hasn't risen with wages, more employees cross it each year purely through ordinary pay rises, exposing more of their income to this considerably higher combined marginal rate — even though, confusingly, the NI portion of that rate actually falls. The overall effect is still a bigger tax and NI bite, driven by income tax rather than NI in isolation.

Why this differs from a genuine promotion or bonus

It's worth distinguishing fiscal drag, which affects a pay rise that simply keeps pace with inflation, from a promotion or performance bonus that represents a genuine increase in real living standards. Both experience the same frozen-threshold mechanics described above, but the framing differs: a promotion recipient is typically still better off overall despite paying more tax and NI on the increase, since their real income has genuinely grown. An inflation-only pay rise recipient, by contrast, may find that after fiscal drag, income tax and NI are all accounted for, their real (inflation-adjusted) take-home pay has barely moved or has even fallen slightly, despite receiving a headline pay rise — because the frozen thresholds mean tax and NI took a growing bite out of a rise that was only ever meant to keep pace with the cost of living, not increase it.

Does salary sacrifice offer any protection against NI fiscal drag?

Salary sacrifice — reducing gross salary in exchange for a non-cash benefit, most commonly increased employer pension contributions — reduces the salary figure that both Income Tax and employee National Insurance are calculated against, since the sacrificed amount never counts as taxable pay in the first place. This doesn't undo fiscal drag on the salary that remains after sacrifice, but it can be a way to manage exposure to it: an employee whose pay rise would otherwise push part of their income into a higher NI or tax band can choose to sacrifice some or all of that rise into their pension instead, keeping their taxable salary lower while still benefiting from the value of the rise via increased pension contributions. This is a genuine trade-off rather than a free win — the money goes into a pension rather than take-home pay — but it's one of the more direct levers available to someone actively trying to manage the effect of frozen thresholds on their own payslip. Explore this with

.

Spotting fiscal drag on your own payslip

The clearest practical test is comparing the percentage increase in your gross pay against the percentage increase in your net (take-home) pay after a raise. If net pay rises by a smaller percentage than gross pay did, part of that gap — beyond any genuine change in your marginal tax band — reflects fiscal drag from thresholds that haven't kept pace with your rising salary.

• Re-run your take-home pay figure every time your salary changes, rather than assuming last year's percentages still apply.
• Pay particular attention if a rise takes you from just below £12,570 to just above it, or from just below £50,270 to just above it — these are where the sharpest marginal changes occur.
• Remember the NI rate itself doesn't rise above £50,270 — it falls to 2% — so the £50,270 crossing point is primarily an income tax event, not an NI one, even though both thresholds sit at the same figure.