Despite a record surplus in January, tax receipts disappoint, leaving the Chancellor’s fiscal rules on a knife edge

The Government ran a record monthly surplus in January – driven by Self-Assessment tax receipts which are always concentrated in January – but looking through the bumper monthly receipts, there are signs that bad news on the economy is leading to a deterioration in the public finances and leaving the Chancellor at risk of breaking her fiscal rules at the next OBR forecast on 26 March – according to the Resolution Foundation today (Friday).

The latest ONS data shows the Government had a budget surplus of £15.4 billion in January – the largest cash surplus in nominal terms since monthly records began in 1993, but still £5.1 billion less of a surplus (more borrowing) than the OBR forecast. This means the Government borrowed £118.2 billion in the fiscal year to date (2024-25), £12.8 billion more the OBR forecast.

The increase in borrowing compared with the OBR’s forecast in January was largely driven by weaker Self-Assessment receipts, which were £3 billion lower than expected. But January data is always relatively uncertain, reflecting the timing of tax payments between this month and next.

More significantly, excluding Self-Assessment, tax receipts are still running nearly £5 billion below the OBR’s forecast in the year to January – suggesting bad news on the economy is starting to affect the public finances.

This combined with higher spending – particularly rising debt servicing costs which are likely to continue given increases in interest rates since the Autumn Budget – mean there is a risk that that the Chancellor’s narrow buffer of £10 billion could easily be wiped out leaving her in the unenviable position of needing to raise taxes or cut spending to meet the fiscal rules.

Cara Pacitti, senior economist at the Resolution Foundation, said:

“January tax receipts usually boost the public finances as people rush to file their tax returns. But, despite the largest monthly surplus on record, broader tax receipts for the financial year so far were £4.6 billion lower than expected last month with worrying signs that bad news on the economy is starting to affect the public finances.

“With borrowing now running £12.8 billion above the OBR’s forecast for the fiscal year to date, there are signs that weaker-than-expected growth and higher inflation and borrowing costs could leave the Chancellor in the unenviable position of needing to raise taxes or cut spending to meet her fiscal rules at the OBR’s 26 March forecast.”