In a setback for Chancellor Rachel Reeves, the UK’s public finances yielded a smaller-than-anticipated surplus in January, complicating her efforts to steer the economy towards growth while adhering to her fiscal plans.
The Office for National Statistics (ONS) reported a £15.4 billion surplus for the month, which, while marking the largest January surplus since 1993 and £0.8 billion higher than the previous year, fell significantly short of the £20 billion anticipated by the Office for Budget Responsibility.
This shortfall emerged despite record income and capital gains tax receipts, hinting at underlying challenges in revenue collection. January is a key month for public finances due to the timing of annual tax payments, yet the income from these sources underperformed expectations.
The cumulative borrowing for the first ten months of this financial year hit £118.2 billion, placing it as the fourth highest on record and well above the forecasted £105.4 billion.
The revised figures reflect not only higher past debt interest payments but also lower corporation tax revenue and a disappointing surplus in January, the ONS noted.
As Reeves strives to boost economic growth within the constraints of fiscal rules that mandate covering day-to-day government spending through tax revenue, the economic stagnation adds further strain to her plans. The Chancellor’s October outline included a £9.9 billion buffer, now under threat from sluggish growth.
Amidst these financial challenges, there are increasing demands for heightened defence spending, notably influenced by calls from former US President Donald Trump.
Alex Kerr, an economist at Capital Economics, commented, “While January’s disappointing public finances figures may not be as bad as they first appear, they continue the run of bad news for the Chancellor in 2025 and underline the difficult choices she faces.”
This financial predicament underscores the intricate balance Reeves must maintain to fulfil her economic and budgetary objectives.
