Fuel and travel costs are pushing prices up again
Thursday 5 November 2026
Inflation has risen to 3.1%, meaning everyday spending is getting more expensive just as household budgets are already under pressure.
Effective tax rate
The total tax someone pays, shown as a percentage of the income or other amount being measured.
Key term
What it means
For Income Tax, divide the total tax paid over a period by the person's total income for that period. This gives an effective or average tax rate: the share of the whole income paid in tax. It can be lower than the rate on someone's next pound of taxable income because some income may be tax-free or taxed at lower rates. Other uses of “effective tax rate” include more taxes or use a different starting amount, so check what a figure counts.
Example
In a made-up example, a person earns £30,000 in a year and pays £3,000 in Income Tax. Their effective Income Tax rate on that income is 10%. That does not mean each pound was taxed at 10%.
Why it matters
A quoted tax band tells you what applies to some of your income; the effective rate helps show the share paid across all of it.
Also known as
average tax rate
Related terms
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Capital gains tax
A tax that may be due on the gain when someone sells or otherwise gives up an asset that has risen in value.
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Fiscal drag
When rising incomes lead to more tax because tax-free amounts or tax thresholds have not kept up.
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Marginal tax rate
The tax rate that applies to the next pound of income you earn.
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Personal allowance
The amount of income most people can receive in a tax year before paying Income Tax on it.
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Progressive tax
A tax under which people with more income pay a larger share of it in tax.
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Regressive tax
A tax that takes a larger share of income from someone on a lower income than from someone on a higher one.
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Tax expenditure
Support provided through a targeted tax break instead of a direct payment from public funds.
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Value added tax (VAT)
A UK tax added to the price of many goods and services people buy.
Read more
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What slower price rises mean for wages, purchasing power and economic recovery.
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