UK public finances surprise with £30bn January surplus, easing pressure on the Chancellor Proactive uses images sourced from Shutterstock
The UK public sector kicked off 2026 with a surprisingly strong start. In January, net borrowing excluding public sector banks came in at a £30.4 billion surplus, well above January 2025’s £14.5 billion and the consensus forecast of £24.0 billion.
This larger-than-expected surplus was driven by a mix of higher tax receipts and lower-than-expected government borrowing. Self-assessed Income and Capital Gains Tax receipts were particularly strong, boosted by the usual January rush, bringing in provisional estimates of £46.4 billion, up £10.5 billion from the same month last year.
Borrowing for the financial year to January now stands at £112.1 billion, down 11.5% from last year, or 3.7% of GDP. The public sector’s current budget was in surplus by £40.9 billion for the month, while the fiscal year-to-date deficit is £55.9 billion, 24% lower than the same period last year.
Commenting on the data, Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said: “Good news for the Chancellor, but the pressure to spend will intensify.”
While the January numbers ease some of the pressure ahead of Chancellor Rachel Reeves’ Spring Statement on 3 March, the details suggest caution, Jordan-Doak added. Lower-than-expected interest payments and underspending drove much of the surplus, while other spending areas exceeded forecasts, hinting at underlying fiscal pressures. Plus, surging capital gains tax receipts may reflect fears of future tax hikes rather than a permanent boost.
Local authorities’ borrowing was in line with expectations, and public corporations borrowed £1.1 billion less than forecast. But with £5 billion already committed this year to cover council SEND (special educational needs and disabilities) deficits and possible increases in defence spending, fiscal challenges are far from over. Pantheon notes that while January’s figures are encouraging, the government’s fiscal plan relies on backloaded tax hikes and tight spending, factors that could be tested further by political developments and upcoming local elections.