It was better news on tax receipts than we are used to. After several months of the borrowing figures rising higher and higher, and with the gilts market turning more and more nervous, January's data suddenly looked a lot better than had been expected.
The first month of the year is always a bumper four weeks for HMRC, as self-assessed tax falls due, as so does capital gains tax (CGT). Even so, January 2026 was better than usual.
The government racked up a surplus of slightly over £30 billion last month, more than double the £15 billion in January 2025.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
That doesn’t mean Britain is suddenly in the black. We will still end the year borrowing more than £100 billion to keep the country afloat.
Latest Videos FromMoneyWeek
Still, it does mean that chancellor Rachel Reeves has a little more money to play with and the gilts market will be reassured. The IMF won’t be flying into Heathrow any time soon.
And yet it is indicative of the way this government thinks that influential figures such as pensions minister Torsten Bell believe that simply squeezing more and more tax revenue out of a stagnant economy is a measure of success.
Tax receipts are not growing because the economy is growing, because earnings and profits are surging, or because retail sales are growing. It is simply that the state is taking more and more of the pie, leaving less for everyone else.
That becomes painfully clear as soon as you start to drill down into the figures. The biggest increase was in receipts from CGT, with £17 billion collected from the sale of assets, a 69% year-on-year increase, and £1.1 billion more than the Office for Budget Responsibility forecast.
Employers’ national insurance contributed a lot more than last year, as did the self-employed through self-assessment, and frozen thresholds mean the yield from income tax has been heading up. Add them all up, and it is not hard to see why revenues are increasing.
Labour backbenchers will no doubt be thinking of ways they can spend the money. Train drivers and junior doctors could be awarded another pay rise. Welfare benefits can be made more generous. The government can give away more free stuff. Ed Miliband can buy some state-of-the-art windmills.
When it comes to spending money, Labour politicians need little encouragement. It is the one thing they are good at and it will be harder for Reeves to tell them the cash is not available.
There are two big problems, however. To start with, the huge rise in CGT receipts is unlikely to be sustained. With all the speculation about an increase in the rate in the last Budget, investors rushed to sell assets, landlords to get rid of their properties, and entrepreneurs to offload their companies. But you can only sell assets once and the total is certain to fall sharply next year.
It is hardly encouraging for growth that investors are ditching British shares and companies at a record rate, even if it does generate a bit more tax revenue.
The state is taking too much in tax receipts
More importantly, it shows the state is taking too much tax.
The huge tax rises Reeves has imposed are crushing the life out of the economy. The big rise in employers’ NI might raise cash, but it has also destroyed jobs, sending unemployment above 5%, and vacancies to record lows.
Frozen income tax thresholds are destroying incentives, with marginal rates of 60% or more, once student loans and tapered reliefs are taken into account.
It’s hardly surprising if people choose to work less and turn down promotions rather than pay that much.
Likewise, the self-employed are stumping up more tax for now. But there are already worrying signs that many of them are working less or taking early retirement instead of paying punitive rates of tax – the number of people working for themselves has already fallen from a peak of more than five million at the start of the decade to 4.3 million now.
The tax haul tells us the chancellor has pushed taxes too high and she should use the Spring Statement to hand some of the cash back.
A £30 billion round of tax cuts paid for with the January surplus would give the economy a massive boost – and repair some of the damage of the past 18 months.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
