UK Average Salary Surpasses £40,000, But Frozen Tax Thresholds Erode Gains
While median earnings hit a new high, "stealth taxation" due to stagnant income tax thresholds is diminishing the real-world benefit of pay increases for many workers.
The typical pre-tax salary for full-time employees in the UK has surpassed £40,000 for the first time, reaching £40,911 in the year to April 2026, according to official findings from the Office for National Statistics (ONS). However, the increase in earnings is increasingly being offset by "stealth taxation" as income tax thresholds remain frozen.
Average full-time weekly earnings rose by 5.8% year-on-year to £811.20 by the end of the period. For part-time employees, average weekly earnings increased by 2.9% to £288.10. The median full-time annual pre-tax salary saw a 4.5% increase, a slight decrease from the previous period's 4.6% and the slowest rate of growth since 2021.
Gender Pay Gap and Sectoral Differences
Among full-time workers, the average pre-tax annual pay for women was £37,471, while for men it was £43,934. This resulted in a gender pay gap of 6.8%, a slight narrowing from 7.2% previously. The ONS noted that this gap does not account for variations in occupation, experience, or qualifications.
The hospitality industry and employees aged 16 to 21 years had the highest proportion of low-paid workers. Conversely, high earners were concentrated in managerial and professional occupations, information and communication sectors, finance and insurance, and among employees aged 45 to 49 years.
Impact of Frozen Tax Thresholds
The rise in nominal earnings is leading more individuals into higher tax brackets because income tax thresholds have not been adjusted for inflation. These thresholds were frozen at 2021 levels by former Chancellor Rishi Sunak and subsequently by Rachel Reeves, deviating from the previous practice of aligning them with the consumer price index.
This phenomenon, known as "fiscal drag," is expected to significantly increase government revenue as the average effective tax rate rises. The current personal allowance, the amount most people can earn before income tax applies, remains at £12,570. Analysis suggests that if the personal allowance had kept pace with inflation, it would stand at £16,072 for the 2026/27 tax year, an increase of £3,502.
Similarly, the higher-rate tax threshold, currently £50,270.20, would be £64,274 if adjusted for inflation. Standard Life estimated that the frozen personal allowance alone added £700.36 to the annual income tax bill of a basic-rate taxpayer in the 2025/26 tax year. For individuals earning above the inflation-adjusted higher-rate threshold, the combined impact of both frozen thresholds could amount to over £3,500 in additional tax.
Worker Hesitancy and Taxpayer Increase
Concerns over increased tax burdens have led some workers to hesitate or refuse pay rises, bonuses, or promotions. Standard Life reported that one in six individuals have expressed such concerns, with over a fifth considering turning down a pay increase if it meant moving into a higher tax bracket.
Since the 2021/22 tax year, the number of people paying income tax has increased from 33 million to an estimated 39.8 million by 2025/26, a rise of 6.8 million. This includes an increase of 3.5 million basic rate taxpayers, 2.9 million higher rate taxpayers, and 700,000 additional rate taxpayers.