The UK government recorded its highest-ever borrowing surplus for January, according to official data, although increased public spending is adding pressure on the Chancellor ahead of the
upcoming Spring Statement.
Figures from the Office for National Statistics (ONS) revealed a public sector net borrowing surplus of £15.4 billion last month, surpassing last year’s figure and marking the largest monthly surplus since records began in 1993.
Tax revenues drive surplus
The government traditionally experiences a budget surplus in January due to an influx of self-assessment tax payments. This year, combined revenue from self-assessment and Capital Gains Tax rose by 10% year-on-year to £36.2 billion. The surplus was further boosted by lower debt repayment costs, as inflation—measured by the Retail Price Index—rose less than expected, reducing interest payments on government debt.
ONS deputy director for public sector finances Jessica Barnaby noted:
"While January often sees a surplus, this year’s figure was the highest on record, driven by strong tax receipts. However, borrowing for the financial year to date remains elevated, marking the fourth-highest level on record."
Fiscal challenges despite surplus
Despite the record surplus, government borrowing over the 10 months to January reached £118.2 billion, exceeding the Office for Budget Responsibility’s (OBR) forecast by £12.8 billion. Increased spending on public services, benefits, and debt interest contributed to the rise.
This could put additional pressure on Chancellor Rachel Reeves as she prepares to deliver the Spring Statement in March. She may face tough decisions on whether to increase taxes or reduce public spending to maintain economic stability.
Alex Kerr, UK economist at Capital Economics, highlighted the difficult position Reeves finds herself in:
"While there is growing pressure to increase defence spending, the OBR is likely to report that the Chancellor’s fiscal headroom has been eroded, necessitating tighter fiscal policy."
Government stance on economic stability
Chief Secretary to the Treasury Darren Jones reassured that the government remains committed to its financial responsibilities:
"We are dedicated to delivering economic stability and adhering to our fiscal rules."
With borrowing levels still historically high and demands on government spending increasing, the Chancellor’s upcoming fiscal strategy will be closely scrutinized as she navigates these economic challenges.