Higher tax helped UK government reach record January surplus

A surge in capital gains tax, employers’ National Insurance contributions and a boost in income tax receipts helped buoy the government’s finances last month.

An uptick in tax receipts, which far outstripped spending, created a £30.4bn surplus in January.

The Office for National Statistics (ONS) said it was the highest surplus in any month since records began in 1993, without adjusting for inflation, and nearly double last January’s £15.4bn figure.

The boost is positive news for the government ahead of the Spring Statement in less than two weeks, but economists warned the public finances remained “finely balanced” as growth in wages and the broader economy remain slow.

The government usually collects more tax than it spends in January compared with other months due to self-assessed tax payments arriving in the month.

Analysts had expected the surplus to be £23.8bn.

The ONS said money received from tax in January was £133.3bn – 13.8% higher than the previous January.

A big upswing in capital gains tax receipts was a major factor in the uptick in government revenue, said Jason Hollands, managing director at wealth management firm Evelyn Partners.

In January 2026, revenue from capital gains tax was nearly £17bn – 69% higher than in January 2025, he said, adding it was likely a reflection of investors disposing of assets since April 2024, ahead of an expected tax rise that came in the October 2024 Budget.

The ONS said National Insurance contributions increased by £2.9bn in January, which also helped bump government income.

It added that another factor for the January uptick was more money made from income tax, which came in at £3.6bn more than last January.

The Treasury’s freeze on income tax thresholds is dragging people in to paying higher tax rates as their incomes rise which aided the increase in income tax receipts, according to Paul Dales, chief economist at Capital Economics.

Borrowing in the 10 months to January was £112.1bn – 11.5% lower than the same 10 month period a year ago – although the ONS noted that it was the fifth-highest borrowing for the period on record.

HM Treasury said borrowing for 2026 is forecast to be “the lowest since before the pandemic.”

Chief Secretary to the Treasury, James Murray, said: “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.”

‘A healthy start’

“The big reduction in public borrowing and surge in retail sales in January support other evidence that the economy started the year looking a lot healthier,” Dales said.

The figures will give Chancellor Rachel Reeves “something positive to point to” in her Spring Statement, he said.

But taking a look at the whole year, Dales cautioned that the “that borrowing has failed to come down much”, and that much of the success in retail sales came from transient boosts such as in sports supplements – which would fall back as people fell off the new year health kick.

He suggested part of the boost in retail spending was not sustainable, especially as recent figures showed that wage growth had slowed, and unemployment had reached its highest in five years.

Economic growth has also been slow, with the economy expanding by 1.3% in 2025. Dale said economic growth was unlikely to be much more than 1% this year.

“The economy is therefore unlikely to significantly ease the political pressure on the Chancellor and PM,” he said.

Shadow Chancellor Mel Stride said Labour’s “record high taxes and irresponsible spending have weakened the economy”, with inflation still above target, a stagnant economy and that Labour had “no growth strategy”.

But another factor that helped the government’s finances was that it spent less on interest payments on its debt, which offset the higher costs of public service and benefits, said the ONS’s economist Grant Fitzner.

The chancellor will give an update on the country’s finances on 3 March, which will include new forecasts from the Office for Budget Responsibility on which direction the UK’s balance sheet is expected to go.

Reeves has been previously criticised for her public borrowing rules, which stipulate that day-to-day government spending should be financed by tax receipts, and that the UK should only borrow to finance infrastructure projects or investments.

On Thursday, the Treasury defended Reeves’ borrowing rules, which she says are “non-negotiable”.