Rachel Reeves just got a £30.4-billion lifeline
Chancellor Rachel Reeves has received a significant £30.4 billion boost to the public finances, providing welcome breathing room just ahead of her Spring Statement on 3 March.
Official figures from the Office for National Statistics (ONS) revealed a record-breaking public sector surplus of £30.4 billion in January 2026, the largest monthly surplus since records began in 1993.
This marks a dramatic improvement, nearly doubling the £15.4 billion surplus seen in January 2025 and surpassing the Office for Budget Responsibility’s (OBR) November forecast by £6.3 billion.
A massive tax boost
The windfall stems primarily from a surge in tax receipts, which reached £133.3 billion, up 13.8% on the previous year. Capital gains tax (CGT) receipts hit a record £17 billion for January, up £7 billion year-on-year, likely driven by investors selling assets in anticipation of potential future tax changes following the October 2024 Budget.
Income tax and National Insurance contributions also rose sharply, boosted by frozen tax thresholds pulling more people into higher bands amid wage growth.
Lower-than-expected debt interest payments further helped, offsetting rises in public service and benefit spending.
As a result, borrowing for the first 10 months of the financial year (April 2025 to January 2026) stood at £112.1 billion, 11.5% lower than the same period a year earlier and £8.3 billion below the OBR’s earlier projection.
Treasury forecasts now point to full-year borrowing being the lowest since before the pandemic, with the government on track to more than halve borrowing by 2030-31.
Increased headroom
The development doubles the government’s fiscal headroom against its self-imposed borrowing rules, which mandate that day-to-day spending is covered by tax receipts and limit borrowing mainly to investment, and offers Reeves greater flexibility without immediate pressure for tax hikes or spending cuts.
“We have doubled our headroom, we are bringing inflation down, we are making sure that taxpayers’ money is spent wisely, and borrowing this year is forecast to be the lowest since before the pandemic,” said Chief Secretary to the Treasury James Murray.
“We know there is more to do to stop one in every £10 the government spends going on debt interest, and we will more than halve borrowing by 2030-31 so that money can be spent on policing, schools and the NHS.”
With the OBR set to publish updated forecasts alongside the Spring Statement, the £30.4 billion surplus gives Reeves a stronger platform, but the underlying economic picture remains finely balanced, with calls for spending on public services clashing against the need for continued fiscal discipline.
The Chancellor has indicated she wants the event to be low-key to avoid unsettling bond markets, but pressure for targeted investments in areas like health and education is likely to intensify.
