Record-breaking budget surplus as government's tax income rises

More money than ever has been left over in the public finances due to more tax being paid, official figures show.

January had the biggest budget surplus since records began in 1993, according to data from the Office for National Statistics (ONS).

It meant the government received more money than it spent last month, leaving £30.4bn left over.

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It's £15.9bn more than the surplus in January 2025, although the figures are not adjusted for inflation.

The surplus is even higher than anticipated by independent forecasters the Office for Budget Responsibility (OBR) - about £6.3bn bigger.

Why?

While there was little change in government spending, the highest-ever recorded surplus resulted from revenue being "strongly up" and lower interest rates, the ONS said.

Self-assessed tax revenues were nearly £6bn more than planned for and capital gains tax receipts surged.

Lower interest rates have meant borrowing money cost less.

The cost of borrowing was £1.5bn in the month, £5bn lower than the time last year.

A relief for Reeves

It's been described as a "welcome relief" and "good news" for Chancellor Rachel Reeves by analysts from Big Four accounting firm PWC and economic research firm Pantheon Macroeconomics.

"This decline eases immediate pressure on the public finances", PWC's economist Nabil Taleb said.

Paying more on debt can mean public finances are more exposed to economic shocks.

But the path ahead is not without hazards for Ms Reeves.

The room she has to spend money before breaking her self-imposed fiscal rules - to bring down government debt and balance the budget by 2030 - has narrowed since the November budget.

Lower gross domestic product readings, a key economic measure, may already have eroded the sums Ms Reeves has to spend before breaking her fiscal rules.

Anaemic economic growth and a rising unemployment rate could mean tax takes stall.

And the January tax revenue figures could be a one-off.

The month is key for the exchequer because of the influx of self-assessed income tax receipts.

Further evidence economy 'picked up smartly'

Good news for the economy also came in the form of retail sales, which recorded a far better than expected January.

The total volume of retail sales, which measures the quantity bought, increased by 1.8% last month, the ONS said.

It was the largest increase since May 2024.

There continued to be "strong" sales at online jewellers as they reported "demand had hit unprecedented levels", the ONS added.

Also selling well were works of art, furniture and technology,

This data gave "further evidence that economic growth picked up smartly in the New Year as budget uncertainty fades", Pantheon's chief UK economist Rob Wood said.

Retail sales figures matter as they measure household consumption, the largest expenditure in the UK economy.

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