In a surprising twist for the UK’s fiscal landscape, the government has recorded a remarkable surplus of £30.4 billion for January 2026, marking the highest monthly surplus since official records began in 1993. This financial boost, driven by increased tax revenues, has come at a crucial time as Chancellor Rachel Reeves prepares for the upcoming Spring Statement. Despite the positive figures, economists caution that the overall financial stability remains precarious as wage growth and economic expansion continue to lag.
Tax Revenue Soars
The substantial surplus is predominantly attributed to a significant rise in capital gains tax, alongside higher contributions from employer National Insurance and a notable increase in income tax receipts. According to the Office for National Statistics (ONS), tax collections for January reached £133.3 billion, reflecting a 13.8% increase compared to the same month last year. This surge was particularly pronounced in capital gains tax, which generated nearly £17 billion—an astonishing 69% rise from January 2025.
Jason Hollands, managing director of Evelyn Partners, explained that this uptick likely stems from investors liquidating assets in anticipation of a tax increase set to take effect following the October 2024 Budget. He noted that this pre-emptive action may have contributed significantly to the government’s boosted tax revenues.
Income Tax and National Insurance Contributions
In addition to capital gains, National Insurance contributions rose by £2.9 billion in January, further enhancing the government’s financial position. Income tax receipts also played a vital role, increasing by £3.6 billion year-on-year. The freeze on income tax thresholds has inadvertently pushed more individuals into higher tax brackets, thereby escalating revenue, as highlighted by Paul Dales, chief economist at Capital Economics.
Despite this positive outlook, Dales warns that the underlying economic metrics remain “finely balanced.” With wage growth stagnating and overall economic expansion slow, the sustainability of these fiscal gains is uncertain.
Borrowing Trends and Economic Outlook
For the ten months leading up to January, public borrowing totalled £112.1 billion—an 11.5% reduction compared to the same period last year. Nonetheless, the ONS acknowledged that this figure still ranks as the fifth-highest borrowing level recorded for that timeframe. HM Treasury has projected that borrowing for the fiscal year 2026 will decline to its lowest point since before the pandemic.
Chief Secretary to the Treasury, James Murray, reiterated the government’s commitment to reducing debt interest payments, asserting that the aim is to halve borrowing by the fiscal year 2030-31. This reduction would ostensibly allow for increased funding in essential services such as policing, education, and healthcare.
Retail Sales Performance
In a separate but related development, retail sales experienced a stronger-than-anticipated growth of 1.8% in January, up from a modest 0.4% increase in December. This positive trend was fuelled by heightened demand for sports supplements and jewellery, alongside a robust performance from the art and antiques sector. Analysts had predicted a far more conservative growth of only 0.2%, indicating a possible resurgence in consumer spending.
Dales remarked that the combination of reduced public borrowing and increased retail sales suggests that the economy began the year on a healthier note. He noted that these figures may provide Chancellor Reeves with encouraging data to present during her upcoming statement.
Why it Matters
The record surplus and rising tax revenues signal a pivotal moment for the UK government as it navigates through ongoing economic challenges. While the current financial figures paint a promising picture, the underlying issues of stagnant wage growth and high unemployment rates cannot be overlooked. The data will undoubtedly influence fiscal policies and spending decisions, making it essential for the government to maintain a balanced approach to ensure long-term economic stability and growth.