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Government finances showed a significant improvement in January, recording a surplus of £30.4 billion as tax revenues exceeded public spending. This surplus is the largest monthly figure since records began in 1993 and nearly doubles the £15.4 billion surplus from January of the previous year, according to data from the Office for National Statistics (ONS). The results have provided a positive backdrop for the upcoming Spring Statement, although experts caution that the fiscal situation remains delicate due to sluggish wage growth and overall economic expansion.
A notable contributor to the increased revenue was a sharp rise in capital gains tax receipts, which reached nearly £17 billion in January 2026—an increase of 69% compared to the same month the previous year. Jason Hollands, managing director at wealth management firm Evelyn Partners, attributed this surge to investors likely selling assets before the anticipated tax hike introduced in the October 2024 Budget. Additionally, the ONS reported a £2.9 billion rise in National Insurance contributions, alongside a £3.6 billion increase in income tax revenues. Paul Dales, chief economist at Capital Economics, explained that the Treasury’s policy of freezing income tax thresholds has effectively pulled more people into higher tax brackets as their earnings rise, helping to boost the government’s receipts.
Despite these gains, borrowing figures reveal a mixed picture. Public borrowing over the ten months leading to January fell by 11.5% year-on-year to £112.1 billion, though this was still recorded as the fifth-highest level for the period since records began. The Treasury forecasted that borrowing for the entire 2026 fiscal year would be the lowest since before the pandemic. James Murray, Chief Secretary to the Treasury, emphasized the government’s commitment to reducing borrowing, 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.”
Meanwhile, retail sales surprised on the upside with an increase of 1.8% in January, well above the 0.2% growth expected by economists. The rise was driven by stronger demand for sports supplements, jewellery, artwork, and antiques. Paul Dales described this as “a healthy start” to the year but warned that some of the gains might be temporary, linked to seasonal factors like New Year health resolutions. He also highlighted concerns tied to slowed wage growth and rising unemployment levels, underscoring the fragile nature of the current economic recovery. Political debate surrounding the data remains sharp, with Shadow Chancellor Mel Stride criticizing the government’s tax and spending policies, pointing to persistent inflation and a lack of a clear economic growth strategy. The ONS further noted that the debt-to-GDP ratio stood at 92.9% at the end of January, levels last seen in the early 1960s
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