Millions of workers across the UK are being warned they risk sabotaging their future financial security by deliberately avoiding career progression to escape a growing tax burden.
Financial experts have revealed that employees are actively turning down pay rises and promotions, fearing they will be pushed into a higher tax band due to frozen thresholds, a policy initially implemented by the Conservative government in April 2021 and continued by the current Labour Chancellor, Rachel Reeves.
The High Cost of Saying 'No'
Josh Peacock, co-founder of SalaryGuide, has issued a stark warning about the long-term consequences of this trend. He stated that such decisions could "quietly sabotage their future far more than the extra tax ever could."
"If you say no to a promotion or pay rise right now, you shouldn't just look at the extra income, you should look at what that number compounds into over the next decade," Mr Peacock advised.
He further cautioned that employers take note of which staff members are ambitious. Refusing progression signals a lack of ambition, a perception that can negatively impact an employee's long-term prospects within a company.
Misunderstanding the Tax System
A key part of the problem, according to Peacock, is a fundamental misunderstanding of how income tax works in the UK. "Even when you move into a higher tax band, you only pay the higher rate on the portion above the threshold, not your entire income. Many people still misunderstand this," he explained.
By rejecting pay growth, workers are effectively freezing their own earning potential. Over the span of an entire career, this cautious approach can result in a lifetime loss of hundreds of thousands of pounds in cumulative earnings and compound growth.
This phenomenon, known as fiscal drag, occurs when tax thresholds remain static while salaries increase, pulling more people into higher tax brackets. The situation is compounded for some as businesses are expected to pass on higher employer National Insurance contributions to their staff through reduced wage growth.
Ultimately, the warning is clear: while avoiding a higher marginal tax rate might seem beneficial in the short term, the long-term cost of career stagnation is far greater.
