Key takeaways
The short answer: it depends on your marginal tax rate, not just the inflation rate
The question "is a 5% pay rise good?" cannot be answered without knowing two things: your current marginal tax rate and the prevailing inflation rate. Most people intuitively compare the gross raise percentage to the CPI figure, which is almost always wrong.
Here is why. If you earn €75,000 in Ireland as a single earner, every additional euro of gross income above €44,000 is taxed at 52% (40% income tax, 8% USC, 4% PRSI). A 5% raise on €75,000 is €3,750 gross. After marginal tax, only €1,800 of that reaches your account. Your net take-home grows from approximately €52,619 to €54,419, which is an increase of about 3.4%, not 5%.
With Irish CPI running at approximately 2-3% in 2026, a 5% gross raise leaves most Irish higher earners only modestly ahead in real terms, and a 4% gross raise at 3% inflation can leave you nominally behind in purchasing power. This is the fiscal drag effect: frozen or slowly adjusting tax thresholds mean a larger and larger share of nominal pay rises goes to Revenue rather than into your pocket.
The marginal tax wedge: why your raise is not what it appears
The marginal tax rate is the percentage taken from each additional euro or pound of gross income. It is not the same as your effective (average) rate, which applies across all your income. When evaluating whether your pay rise beats inflation, marginal rate is the only number that matters.
The practical consequence: an Irish earner above €44,000 needs a gross raise of approximately 6.25% just to grow their net take-home by 3% in nominal terms. With Irish CPI at 3%, that 6.25% gross raise is the break-even point for real purchasing power. A 5% gross raise at 3% inflation leaves Irish higher earners approximately 0.6% behind in real terms, losing roughly €300-€500 per year in purchasing power.
Worked examples: four salary scenarios across Ireland and the UK
The table below shows how four common pay rise scenarios play out after tax and inflation. The "verdict" is whether real purchasing power increases or decreases.
Ireland, €75K, 4% raise, 3% inflation
⚠ Behind inflationCurrent net
€52,619
New net
€54,053
Nominal net gain
+€1,434
Real gain
-€140
The 4% gross raise only grows your net by 2.7% nominally. With 3% CPI, you lose €140/yr in real terms. Net income grows 2.7% nominally.
Ireland, €75K, 5% raise, 3% inflation
✓ Ahead of inflationCurrent net
€52,619
New net
€54,773
Nominal net gain
+€2,154
Real gain
+€548
5% gross grows your net 4.1% nominally. At 3% CPI, you are €548/yr ahead in real purchasing power. Net income grows 4.1% nominally.
UK, £65K, 5% raise, 3% inflation
✓ Ahead of inflationCurrent net
£48,257
New net
£50,215
Nominal net gain
+£1,958
Real gain
+£548
5% gross grows your UK net 4.1% nominally. At 3% CPI, you are £548/yr ahead in real terms. Net income grows 4.1% nominally.
UK, £65K, 4% raise, 5% inflation
⚠ Behind inflationCurrent net
£48,257
New net
£49,811
Nominal net gain
+£1,554
Real gain
-£988
4% gross raise grows UK net only 3.2% nominally. At 5% CPI, you lose £988/yr in real purchasing power. Net income grows 3.2% nominally.
Run your own pay rise vs inflation calculation
Enter your salary, raise percentage, and Ireland or UK inflation rate. The calculator shows your nominal net gain, real purchasing power change, break-even CPI, and whether you are ahead or behind inflation in real terms. If your result shows a ⚠ verdict below, scroll to the negotiation section.
Open Inflation Impact CalculatorFiscal drag: why this problem is getting worse over time
Fiscal drag is the process by which rising nominal wages push more income into higher tax bands, even when those wages are only keeping pace with inflation in real terms. In Ireland, the standard rate cut-off of €44,000 has increased modestly since 2020 but has not kept pace with cumulative wage growth or inflation. The result: more of every pay rise now falls into the 52% marginal rate band than it did five years ago.
The UK has the same dynamic. The £50,270 higher rate threshold has been frozen since 2022. With wage inflation running at 4-5% per year, this means hundreds of thousands of additional UK earners have crossed into the higher rate band each year without any increase in their real standard of living. HMRC describes this as "fiscal drag" in official documents, and the OBR estimates it is one of the largest sources of additional tax revenue in the current parliament.
The practical implication for individuals: if your salary has grown by 15-20% cumulatively since 2021 (which is not unusual for mid-to-senior tech professionals), a larger share of your total income is now in the higher rate band than it was then, even if your lifestyle has not meaningfully improved. Your effective tax rate has risen without any tax rate change.
How much gross raise do you actually need to beat inflation?
The formula for the minimum gross raise needed to maintain real purchasing power is:
Required gross raise % = CPI % / (1 - marginal tax rate)
This is the minimum to exactly maintain purchasing power. A rise above this is real wage growth.
With Irish CPI at 3% in 2026, an Irish higher earner needs a gross raise of at least 6.3% just to stand still in real terms. The average pay settlement of 4-5% in Ireland means most higher earners are experiencing real wage erosion of 1-2% per year, despite positive gross pay growth. The UK position is better but the same dynamic applies.
If your raise is behind inflation: what to do
If the inflation impact calculator returns a ⚠ verdict, you have three levers, and using the maths from the calculator in a salary conversation is more effective than most people realise.
If a higher salary offer means relocating
Sometimes the best response to a below-inflation raise is an offer from another employer in a different city. Before comparing gross figures, run both through the relocation salary calculator to account for the cost of living difference alongside the tax change. A £10,000 gross raise to move from Dublin to London may leave you no better off or even worse off in real purchasing power terms once both factors are included.
Frequently asked questions
What is real wage growth and how is it different from a pay rise?
A pay rise is a change to your gross salary: a nominal increase. Real wage growth is what that pay rise is worth after you account for inflation. If your salary increases by 4% but prices rise by 3%, your real wage growth is approximately 1%. In practice, the calculation is slightly more complex because your net take-home (after tax) does not increase by the same percentage as your gross, due to marginal tax rates. Real wage growth should always be measured on net take-home in inflation-adjusted terms, not on the gross percentage.
Why does a 5% gross raise not mean 5% more money in my account?
Because income tax and social charges apply to the additional gross income at your marginal rate, not your average rate. If you earn €75,000 in Ireland as a single earner, your marginal rate above €44,000 is 52% (40% income tax, 8% USC, 4% PRSI). A 5% raise on €75,000 is €3,750 gross. After 52% marginal tax, only €1,800 reaches your account. Your net take-home grows by approximately 3.4%, not 5%. In the UK at £65,000, the marginal rate above £50,270 is 42%, so a 5% raise of £3,250 gross becomes approximately £1,958 net, growing your take-home by about 4.1%.
What is the 'break-even' inflation rate for my pay rise?
The break-even inflation rate is the CPI figure at which your pay rise exactly maintains your current standard of living in real terms. It is calculated as: (new net take-home divided by current net take-home, minus 1) times 100. This gives the percentage by which your net has grown nominally. If your net grows by 2.7% and CPI is 3%, you are behind inflation by 0.3% in real terms. If CPI is 2%, you are 0.7% ahead. The break-even rate is always lower than your gross raise percentage because of marginal tax, which is why matching inflation requires a gross raise noticeably above the CPI figure.
What is the average pay rise in Ireland and the UK in 2026?
Pay settlements in Ireland in 2025-2026 have averaged approximately 3-5% across the private sector, with tech, finance, and professional services at the higher end. The CSO earnings data shows that average weekly earnings grew approximately 4.2% year-on-year in early 2026. In the UK, average wage growth (ONS AWE measure) has been running at approximately 4-5% in the private sector. With UK CPI at approximately 2.5-3% and Irish HICP at approximately 2-3%, most professionals are nominally ahead of inflation but the post-tax real gain is modest.
If my pay rise is behind inflation, what should I do?
There are three levers. First, negotiate a higher gross raise: use the break-even figure from the inflation impact calculator as your anchor point. If inflation is 3% and your marginal rate is 52%, you need at least a 6.25% gross raise just to grow your net by 3% nominally and match CPI. Presenting this mathematics to a manager is a more compelling argument than simply citing inflation. Second, consider non-salary compensation: pension contributions, remote flexibility, and training budgets all have monetary value that doesn't appear in the gross figure. Third, assess the market: if your employer is consistently offering below-inflation settlements, benchmarking your salary against current market rates provides leverage for a larger adjustment or a move.
Does marginal tax or effective tax rate matter more for this calculation?
Marginal tax rate is what matters for evaluating a pay rise. Your effective (average) tax rate tells you how much of your total income goes to tax overall. Your marginal rate tells you how much of each additional euro or pound you earn will be taken. When assessing a pay rise, the marginal rate is the number that determines what actually lands in your account from the raise. For an Irish earner above €44,000, every extra euro of gross becomes 48 cents net. For a UK earner above £50,270, every extra pound becomes 58 pence net.
Related calculators and data