Betting on fiscal drag won't help the chancellor balance the economy

A horse called Fiscal Drag was unplaced in a race at the Aqueduct race track in New York last Saturday.

- William Keegan

But the economic concept of fiscal drag featured strongly in chancellor Rachel Reeves’s second budget earlier in the week.To explain: fiscal drag is a process by which people are pulled into higher tax brackets when their incomes rise to match increases in inflation. It was to counteract this tendency - “bracket creep” ~ that the Labour MPs Jeff Rooker and Audrey Wise tabled an amendment to the 1977 Finance Act, making it a “statutory duty” to increase personal allowances and thresholds by at least the rate of inflation each year.

Nigel Lawson, as chancellor, supported this venture. Since then, the spirit of that amendment has frequently been honoured more in the breach than the observance. The recent budget was a key example.