UK government in unexpected tax surplus for January

The UK unexpectedly recorded a budget surplus in January, in part due to an increase in self assessment Income Tax receipts. Markets had been expecting another deficit to be recorded on the national accounts.

Self-assessed income tax receipts were up 18.4% on the same time last year. In addition, Pay As You Earn (PAYE) receipts were up 10.9% and corporation tax receipts were up 16.7% year-on-year.

On Tuesday the ONS reported:

“In January 2023, SA Income Tax receipts have been provisionally estimated at £21.9 billion, which was the highest in any month since records began in April 1999, up one-third from a year ago.”

As a result, public sector net borrowing (excluding banks) in January 2023 was in surplus by £5.4 billion. This marks the first time in over two years that the government has run a surplus, as the COVID-19 pandemic and subsequent economic fallout had previously put a strain on public finances.

In addition the government has been taking steps to reduce spending. In particular, it has cut back on certain pandemic-related expenses, such as the furlough scheme, as the economy has reopened. It has also been reining in other areas of spending, such as public sector pay, to try to balance the books.

Futhermore, the government has been able to benefit from low interest rates, which have kept the cost of borrowing down.

Ruth Gregory, Deputy Chief UK Economist at Capital Economics, said:

"January's public finances figures suggest the Chancellor will have scope for some giveaways in his Budget on 15th March,"

Source: ONS