In a remarkable turn of events, the UK government reported a record surplus of £30.4 billion for January, buoyed by an increase in capital gains tax, National Insurance contributions, and income tax receipts. This figure marks the highest monthly surplus recorded since the Office for National Statistics (ONS) began tracking these figures in 1993, not accounting for inflation, and nearly doubles last January’s surplus of £15.4 billion.
Strong Tax Revenue Fuels Surplus
The significant financial boost is largely attributed to a robust performance in tax collection, which reached £133.3 billion, a notable 13.8% increase compared to January of the previous year. Analysts had anticipated a surplus of £23.8 billion, demonstrating the government’s stronger-than-expected fiscal health.
Jason Hollands, Managing Director at wealth management firm Evelyn Partners, indicated that a substantial rise in capital gains tax receipts played a crucial role in this financial uplift. In January 2026, the government collected nearly £17 billion from capital gains tax, a staggering 69% increase from the same month in 2025. This surge likely reflects investors liquidating assets in anticipation of an impending tax rise announced in the October 2024 Budget.
Additionally, National Insurance contributions surged by £2.9 billion, further enhancing the government’s income. The ONS also reported an increase in income tax, which generated £3.6 billion more than the previous year. Paul Dales, Chief Economist at Capital Economics, noted that the government’s freeze on income tax thresholds has led more individuals to fall into higher tax brackets as their earnings increase.
Borrowing Trends and Economic Outlook
Despite the impressive surplus, public borrowing for the ten months leading to January reached £112.1 billion, slightly down by 11.5% from the same period last year. However, this figure is still the fifth-highest borrowing recorded for that timeframe. The Treasury has forecasted that borrowing for 2026 will be “the lowest since before the pandemic.”
James Murray, Chief Secretary to the Treasury, acknowledged the ongoing challenge, stating, “We know there is more to do to stop one in every £10 the government spends going on debt interest, and we will more than halve borrowing by 2030-31 so that money can be spent on policing, schools, and the NHS.”
Dales remarked that the substantial reduction in public borrowing and a spike in retail sales during January suggest the economy began the year on a positive note. He posited that these figures could provide Chancellor Rachel Reeves with a strong point of reference in her upcoming Spring Statement.
Caution Amidst Optimism
However, analysts urge caution. Dales highlighted that while January’s figures are encouraging, the overall trend in borrowing has not seen significant reduction, and there are concerns that the uptick in retail sales may not be sustainable. The recent surge is partly attributed to short-term boosts, such as increased purchases of sports supplements, which are likely to drop as consumer habits normalise post-New Year.
Economic growth has also been sluggish, with a mere 1.3% increase recorded in 2025. Dales suggested that this year’s growth might not exceed 1%, which could complicate the political landscape for the Chancellor and the Prime Minister.
Shadow Chancellor Mel Stride has criticized the current administration for its “record high taxes and irresponsible spending,” arguing that Labour’s policies have weakened the economy amid persistent inflation and a stagnant growth environment.
Upcoming Financial Update
The Chancellor is set to provide a comprehensive update on the nation’s finances on 3 March, which will include revised forecasts from the Office for Budget Responsibility regarding the trajectory of the UK’s fiscal health. Reeves has faced scrutiny for her public borrowing rules, which mandate that day-to-day government spending be funded through tax receipts, allowing borrowing only for infrastructure or investment projects.
The Treasury has defended these guidelines, asserting that they are essential for maintaining fiscal discipline.
Why it Matters
The record surplus presents a complex picture of the UK’s financial landscape. While it signifies a moment of fiscal strength, the underlying issues of slow economic growth and rising public borrowing remain pressing concerns. As the government approaches critical financial announcements, understanding these dynamics will be vital for assessing the long-term economic stability and growth strategies of the UK. With the upcoming statements from Chancellor Reeves, stakeholders will be closely watching how these factors will shape the country’s financial future.
