More than two thirds (69%) of DIY investors do not understand what ‘fiscal drag’ means, research from Charles Stanley Direct has revealed.
This figure rises among women, with 80% of female investors unsure what the term means, compared to 68% of men.
Rob Morgan, chief investment analyst at Charles Stanley Direct, said: “The Chancellor’s Budget was particularly impactful for business owners who must absorb higher national insurance costs from April, as well as for wealthier families affected by a raft of measures around inheritance tax.
“As these measures were relatively targeted, some may think they weren’t hit hard by the policies unveiled. But in her Budget announcement, Rachel Reeves chose not to extend the freeze on income tax thresholds beyond 2028, meaning many could get caught out by a process called ‘fiscal drag.’ Concerningly though, more than two thirds of DIY investors do not understand what ‘fiscal drag’ means, which could drag people into paying more tax without realising.”
Half (50%) of DIY investors incorrectly identified the meaning of ‘fiscal drag’, said Charles Stanley Direct, with 12% believing it means that government spending has to fall because of lower tax receipts, while 11% said that if earnings increase but inflation falls, consumers see ‘fiscal drag’.
Nearly one in 10 (9%) said they thought it means that taxes paid by consumers and businesses create a ‘fiscal drag’ on growth, while the same proportion (9%) said ‘fiscal drag’ is created when bond markets plummet.
A further 9% said they believe the term refers to household income falling and moving down a tax bracket.
One in five (20%) investors admit they simply do not understand what fiscal drag means.
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