The UK government has reported a remarkable £30.4 billion surplus for January, marking the highest monthly surplus since record-keeping began in 1993. This financial windfall, driven by a substantial increase in tax receipts, comes as a positive sign for Chancellor Rachel Reeves ahead of the upcoming Spring Statement. However, economists caution that the overall economic landscape remains precarious, with slow growth in wages and the broader economy.
Record Tax Revenues Drive Surplus
The Office for National Statistics (ONS) revealed that tax revenues soared to £133.3 billion in January, a 13.8% increase compared to the same month last year. This substantial inflow was largely attributed to a significant rise in capital gains tax, which surged by nearly 69% year-on-year, as investors sold off assets in anticipation of a tax increase expected in the forthcoming October 2024 Budget.
Jason Hollands, managing director at Evelyn Partners, highlighted that the capital gains tax receipts reached almost £17 billion, indicating a robust response from investors. Additionally, National Insurance contributions saw an increase of £2.9 billion, further bolstering government income. Income tax receipts also experienced a notable rise, amounting to £3.6 billion more than January 2025, driven in part by the government’s freeze on income tax thresholds. This policy has pushed more individuals into higher tax brackets as their earnings increase, as explained by Paul Dales, chief economist at Capital Economics.
Borrowing Trends and Economic Outlook
Despite the impressive surplus, the government’s borrowing for the ten months leading up to January totalled £112.1 billion, representing an 11.5% decline from the same period the previous year, although it remains the fifth-highest borrowing level on record. HM Treasury has forecasted that borrowing for the current fiscal year will be the lowest since prior to the pandemic, with Chief Secretary to the Treasury James Murray emphasising the need to reduce the percentage of government spending directed towards debt interest.
While the January figures provide a glimmer of hope, Dales noted that the overall reduction in borrowing has been modest. He warned that recent upticks in retail spending, particularly those driven by temporary factors such as New Year health trends, may not be sustainable. The UK economy grew by a mere 1.3% in 2025, and expectations for this year remain subdued, with growth anticipated to not exceed 1%.
Political Implications and Future Projections
The results will likely offer Chancellor Reeves an opportunity to present a positive narrative in her Spring Statement on 3 March, where she will unveil new forecasts from the Office for Budget Responsibility regarding the nation’s financial trajectory. However, the opposition has been vocal, with Shadow Chancellor Mel Stride criticising the government’s high tax rates and lack of a coherent growth strategy.
Critics have also targeted Reeves’ public borrowing rules, which mandate that everyday government expenditure must be financed through tax revenues. The Treasury has defended these guidelines, asserting their importance in maintaining fiscal discipline, as Reeves described them as “non-negotiable.”
Why it Matters
This January surplus represents a significant financial achievement for the UK government, yet it underscores a complex economic picture. While the increase in tax revenues provides a temporary boost, the slow growth in wages and the economy at large presents ongoing challenges. As the Chancellor prepares for the Spring Statement, the interplay between fiscal policy and economic performance will be crucial in shaping public perception and political stability. The government’s ability to navigate these challenges while implementing sustainable growth strategies will be vital for future economic health.
