The UK government has reported a remarkable financial turnaround for January, achieving a record surplus of £30.4 billion. This significant figure is attributed to a notable rise in tax collections, including capital gains tax and National Insurance contributions, which far exceeded government spending for the month. As the Chancellor prepares for the forthcoming Spring Statement, this surplus marks the highest monthly figure since records began in 1993, signalling potential shifts in economic strategy.
Surge in Tax Revenue
The latest data from the Office for National Statistics (ONS) indicates that tax receipts for January soared to £133.3 billion, representing a 13.8% increase compared to the same month in 2025. This impressive growth in revenue was primarily driven by a substantial rise in capital gains tax collections, which reached nearly £17 billion—an astounding 69% increase from the previous year. Experts suggest that this surge may be linked to investors selling off assets in anticipation of an expected tax hike in the upcoming budget.
Additionally, National Insurance contributions increased by £2.9 billion, while income tax receipts rose by £3.6 billion compared to January last year. The freeze on income tax thresholds has inadvertently pushed more individuals into higher tax brackets, contributing to the uptick in overall income tax revenue, as pointed out by Paul Dales, chief economist at Capital Economics.
Borrowing Trends and Economic Outlook
Despite the record surplus, borrowing for the ten months leading up to January totalled £112.1 billion, which is 11.5% lower than the same period in the previous year, although it remains the fifth-highest borrowing figure on record for this timeframe. The Treasury has forecasted that borrowing for the financial year 2026 is set to be the lowest since before the pandemic, indicating a cautious but optimistic outlook.
Chief Secretary to the Treasury, James Murray, acknowledged the need to reduce debt interest payments, which currently account for a significant portion of government spending. He emphasised the government’s aim to cut borrowing by more than half by the 2030-31 fiscal year, allowing for increased investment in essential services such as policing, education, and healthcare.
Economic Challenges Persist
While the January surplus is seen as a positive indicator for the government, economists warn that the overall economic landscape remains precarious. Dales noted that although retail sales showed a healthy increase, much of this growth could be fleeting, driven by temporary factors such as post-New Year spending sprees. He cautioned that with wage growth stagnating and unemployment reaching a five-year high, sustainable economic growth remains uncertain, likely hovering around 1% for the year.
Political repercussions are also in play, with Shadow Chancellor Mel Stride criticising the current government’s tax policies and spending strategies. He argued that Labour’s approach has exacerbated economic stagnation, with inflation still exceeding targets and no clear growth strategy in sight.
Upcoming Financial Assessments
The Chancellor is expected to present an update on the country’s finances on 3 March, which will include new forecasts from the Office for Budget Responsibility. These assessments are anticipated to offer insights into the trajectory of the UK’s fiscal health and may influence future economic policies.
Reeves has faced scrutiny for her public borrowing guidelines, which stipulate that day-to-day government expenses should be financed through tax revenues, with borrowing reserved exclusively for infrastructure projects. The Treasury has defended these rules as essential to maintaining fiscal discipline, with Reeves asserting that they are “non-negotiable.”
Why it Matters
The record January surplus presents a unique moment for the UK government, providing a potential springboard for economic revitalisation. However, as officials consider future budgets and spending strategies, the underlying challenges—such as slow wage growth and high unemployment—cannot be ignored. The ability to maintain fiscal discipline while fostering economic growth will be crucial as the government navigates these complex financial waters in the months ahead.