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UK Government Reports Record January Surplus: What Drove the Numbers and What It Means for You

News·22 February 2026

Record-Breaking January Surplus

The government posted a £30.4 billion surplus in January 2026. This is the highest monthly surplus since records began in 1993 (not adjusted for inflation) and nearly double the £15.4 billion reported in January 2025. The surplus far outpaced predictions, with analysts expecting around £23.8 billion.

Why January Surplus is Usually High

January is typically a strong month for government finances. This is when self-assessment tax payments are due, boosting government income. But this year’s figures went well beyond the usual seasonal bump.

What Drove the Surplus?

Several factors contributed to the record surplus:

  • Capital Gains Tax (CGT): Receipts nearly hit £17 billion, up 69% from January 2025. Many investors sold assets after April 2024, likely to avoid tax increases announced in the October 2024 Budget.
  • Employers’ National Insurance Contributions: These increased by £2.9 billion compared to the previous year.
  • Income Tax Receipts: Income tax brought in £3.6 billion more than last January. The freeze on income tax thresholds means more people are pushed into higher tax bands as their pay rises.

Overall, tax receipts in January were £133.3 billion, up 13.8% from the previous year. This dramatic increase in revenue played a key role in the surplus.

Lower Borrowing—and What’s Behind It

Between April 2025 and January 2026, government borrowing totalled £112.1 billion. That’s 11.5% less than the same period a year earlier, making it the fifth-highest borrowing for this period on record. The Treasury predicts 2026’s overall borrowing will be the lowest since before the pandemic.

Reduced government interest payments on debt also helped finances. Lower inflation and falling bond yields meant less of the budget went towards servicing debt, freeing up money for other priorities.

Economic Signs: Some Caution Needed

While the surplus is good news, there are warning signs. Economic growth remains sluggish. The UK economy grew by just 1.3% in 2025, and forecasts suggest growth will stay close to 1% for 2026. Wage growth has slowed, and unemployment is at its highest level in five years.

Retail sales rose sharply in January, but this was partly fuelled by short-term trends, such as a spike in sports supplement purchases linked to New Year’s resolutions. These boosts are unlikely to last.

Political and Policy Reactions

The figures arrive just before the Spring Statement, giving Chancellor Rachel Reeves some positive news to highlight. However, critics argue that the government’s high taxes and spending have left the economy weak, with inflation still above the Bank of England’s 2% target and no strong growth strategy.

Reeves’ approach to public borrowing has drawn criticism. Her fiscal rules require day-to-day government spending to be covered by tax receipts, and only allow borrowing for infrastructure and investment. The Treasury has defended these rules, calling them "non-negotiable".

What Does This Mean for Taxpayers?

  • Frozen Tax Thresholds: With income tax bands frozen, more people will pay higher rates as their earnings rise, even if their standard of living does not improve. This is sometimes called "fiscal drag". Use online calculators to see how your take-home pay could be affected.
  • Capital Gains Tax Changes: If you are an investor, check how changes to CGT might affect your portfolio. Consider using tax wrappers like ISAs to shelter gains from tax.
  • National Insurance: Employers’ contributions are up, which could influence pay rises and job creation. If you are self-employed, make sure you are budgeting for higher National Insurance costs.

Practical Tips

  • Stay on Top of Tax Deadlines: January is always a key month for self-assessment taxpayers. Filing early can help you plan for any tax bill and avoid penalties.
  • Review Your Tax Code: Check your tax code each year, especially if your circumstances change. An incorrect code can lead to overpaying or underpaying tax.
  • Use Allowances: Make full use of your ISA and pension allowances to reduce your taxable income and gains. For 2025/26, the ISA allowance is £20,000, and the annual pension allowance is up to £60,000 (subject to income).
  • Consider Tax Planning: If you are likely to pay CGT, consider spreading asset disposals over multiple tax years to make the most of annual exemptions. The CGT annual exempt amount is now just £3,000, so careful planning is essential.

Looking Ahead

The Chancellor will update the country on public finances and new forecasts from the Office for Budget Responsibility (OBR) on 3 March. Keep an eye on announcements, especially if you are a higher-rate taxpayer, property investor, or business owner.

While the January surplus is a positive sign, ongoing weak economic growth and high inflation mean public finances remain under pressure. Planning ahead and understanding how changes in tax and spending affect your personal finances will help you stay prepared for any shifts in government policy.

Key Takeaways

  • January’s surplus was driven by higher tax receipts, especially from capital gains and income tax.
  • Tax threshold freezes mean more people will pay higher taxes as incomes rise.
  • Economic growth is still slow, so further tax or spending changes are possible.
  • Regularly review your finances to take advantage of allowances and avoid tax surprises.

For tailored advice, consider speaking to a qualified financial adviser, especially if you have complex income, investments, or are nearing retirement. Keeping informed can help you make the most of your money, whatever the headlines.