In a remarkable turn of events, the UK government has reported a record surplus of £30.4 billion for January 2026, marking the highest monthly surplus since 1993. This substantial financial uptick, nearly double the £15.4 billion surplus recorded in January 2025, was driven by increased tax revenues, particularly from capital gains tax and National Insurance contributions. However, despite this positive news ahead of the forthcoming Spring Statement, economists are cautioning that the overall fiscal landscape remains precarious.
Tax Revenue Surge Fuels January Surplus
The significant surplus can be attributed to a combination of factors, with January typically seeing an influx of tax payments as self-assessed taxes are due. The Office for National Statistics (ONS) reported that tax receipts for the month reached £133.3 billion, an increase of 13.8% compared to January of the previous year. Analysts had forecasted a surplus of £23.8 billion, underscoring the stronger-than-expected performance.
Jason Hollands, managing director at Evelyn Partners, highlighted a pronounced increase in capital gains tax, with revenues soaring to nearly £17 billion—an astonishing 69% rise compared to January 2025. This surge is likely linked to investors selling off assets ahead of anticipated tax hikes announced in the October 2024 Budget. National Insurance contributions also saw a notable increase, adding £2.9 billion to government coffers, while income tax receipts rose by £3.6 billion.
Caution Amid Financial Gains
Despite the impressive surplus figures, experts advise caution. Paul Dales, chief economist at Capital Economics, pointed out that while the reduction in public borrowing is a positive indicator, the overall financial health remains “finely balanced.” The government recorded a borrowing figure of £112.1 billion over the ten months leading to January, an 11.5% decrease from the previous year but still one of the highest levels on record for this period.
Chief Secretary to the Treasury, James Murray, acknowledged the need for continued efforts to reduce the proportion of government spending allocated to debt interest, asserting the goal of halving borrowing by the 2030-31 fiscal year to allow for increased investment in key public services like policing, education, and healthcare.
Retail Sales Show Unexpected Growth
Adding to the mixed signals from the economy, retail sales in January experienced a surprising uptick, rising by 1.8% compared to December, far exceeding the anticipated 0.2% increase. This growth was driven by strong demand for sports supplements and jewellery, with sales of artwork and antiques also performing well. Dales described this as a “healthy start” to the year, but also cautioned that much of this retail boost may be unsustainable, especially given the recent slowdown in wage growth and the rise in unemployment to a five-year high.
Shadow Chancellor Mel Stride critiqued the government’s financial strategy, attributing the current economic stagnation to Labour’s “record high taxes and irresponsible spending,” emphasising the need for a robust growth strategy in light of ongoing inflation concerns.
Economic Outlook Remains Uncertain
As the government prepares for the upcoming Spring Statement, the mixed economic indicators present both opportunities and challenges. While the record surplus offers a semblance of fiscal stability, the underlying issues of sluggish economic growth and high unemployment loom large.
The ONS reported that the debt-to-GDP ratio stood at 92.9% at the end of January 2026, reflecting levels not seen since the early 1960s, further complicating the financial narrative.
Why it Matters
The record surplus achieved by the UK government in January is a significant milestone that suggests a temporary respite in fiscal challenges. However, the warning signs from economists indicate that this success may mask deeper issues within the economy. The interplay of rising taxes, slow wage growth, and high unemployment rates underscores the importance of a balanced approach to economic management. As the government navigates these complexities, the forthcoming Spring Statement will be a critical juncture in shaping the future financial landscape of the UK.
