Joy for Reeves as government finances boosted by record surplus in January

Danni Hewson, head of financial analysis at AJ Bell, notes that January’s record £30.4bn surplus was driven by a surge in self-assessment tax receipts and fiscal drag, helping reduce borrowing year to date, though spending pressures and elevated debt levels remain significant.

Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK public sector finances:

“January is usually the month that puts a smile on the faces of UK chancellors, but Rachel Reeves could be forgiven for getting cheek ache today. 

“As taxpayers rushed to complete their self-assessment forms and pay any cash they owed to HMRC, recent policy changes and the sneaky impact of fiscal drag meant the amount coming into government coffers far outstripped the amount being spent. 

“The two points in the year at which self-assessment payments are due often leads to a significant surplus, but once you add in other changes including increased employer’s national insurance contributions, the government’s current receipts were up a whopping 13.8% in January compared to the previous year. 

“Borrowing over 10 months from April 2025 to January 2026 was also substantially lower than that over the corresponding 10-month period last year. However, it was still the fifth highest since records began, thanks primarily to increased spending on goods and services and inflation-linked benefit increases. 

“This month’s figures were also boosted by a £5 billion decrease in the interest being paid on the huge debt mountain. James Murray, chief secretary to the treasury, admits there is ‘more to do’ when it comes to reducing borrowing so less government cash is spent on interest payments and more of it can be spent on improving public services.

“Although January can only come once a year, the government will hope that with inflation continuing to cool the path forward is less difficult than the one behind.”