A remarkable increase in tax receipts has propelled the UK government to achieve a record surplus of £30.4 billion for January, marking the highest monthly surplus since records began in 1993. Contributing factors included a rise in capital gains tax, National Insurance contributions, and income tax, creating a fiscal landscape that stands in stark contrast to last January’s surplus of £15.4 billion. With the Spring Statement looming, the government is faced with cautious optimism as economists warn of ongoing challenges in public finance.
Strong Tax Revenues Boost Government Finances
January typically sees the government collect more tax than it spends due to the influx of self-assessed tax payments. This year was no exception, with the Office for National Statistics (ONS) reporting tax receipts of £133.3 billion, an impressive 13.8% increase compared to the same month last year. Analysts had anticipated a surplus of £23.8 billion, making the actual figure all the more striking.
Jason Hollands, managing director at Evelyn Partners, highlighted a significant rise in capital gains tax receipts, which reached nearly £17 billion—69% higher than in January 2025. This surge is believed to be linked to investors liquidating assets ahead of anticipated tax hikes announced in the October 2024 Budget. The increase in National Insurance contributions, which grew by £2.9 billion, further bolstered government income, while income tax revenues also saw a notable rise, contributing an additional £3.6 billion compared to the previous January.
Caution Amidst Optimism
Despite the positive financial developments, experts like Paul Dales, chief economist at Capital Economics, caution that the public finances remain in a delicate state. While borrowing for the ten months leading up to January totalled £112.1 billion—11.5% lower than the same period the previous year—this figure is still among the highest recorded for such a timeframe. The Treasury has forecasted that borrowing for 2026 will be the lowest since before the pandemic, a prediction that some analysts view with skepticism.
Dales remarked on the potential for the retail sales surge in January to be short-lived, attributing part of it to transient factors, such as increased spending on sports supplements tied to New Year’s resolutions. With wage growth slowing and unemployment reaching its highest point in five years, the economic landscape appears less stable. He anticipates that overall economic growth will remain modest, estimating an expansion of just over 1% for the year.
Political Reactions and Future Implications
The financial results have sparked a political debate, with Shadow Chancellor Mel Stride accusing the Labour government of fostering a stagnant economy through high taxes and irresponsible spending. Stride emphasised that inflation remains above target levels, further complicating the economic recovery.
The upcoming Spring Statement on 3 March will be an important opportunity for Chancellor Rachel Reeves, who has faced criticism for her public borrowing rules, which dictate that day-to-day government spending should be funded by tax revenues. The Treasury has defended these rules, asserting their importance in maintaining fiscal responsibility.
Why it Matters
The record surplus achieved in January presents a double-edged sword for the UK government. While it reflects a temporary boost in tax revenues, the underlying economic conditions—characterised by slow wage growth and rising unemployment—underscore the fragility of this fiscal success. As the government approaches its Spring Statement, the challenge will be to navigate these financial gains while addressing the broader economic pressures that continue to loom, ensuring that the benefits of this surplus translate into sustainable growth and improved public services.
