The British Government ran an unexpected budget surplus in January 2023, reflecting strong income tax receipts that could give Chancellor Jeremy Hunt more leeway in his upcoming Budget.

The Office for National Statistics (ONS) reported the Treasury is in a £5.4 billion surplus after receiving more in tax receipts than it spent in January, outperforming predictions that monthly borrowing would total £7.86bn.

In the financial year to January, the public sector borrowed £116.9bn, a figure £30.6bn less than the Office for Budget Responsibility (OBR) forecast in November, the ONS also found.

Income tax receipts rose by 33% to £21.9 billion in January, the highest monthly tax take since records began in 1999, while the overall tax take climbed to £106.5bn - 19% more than income tax receipts in the same month last year.

The Government has frozen the point at which individuals pay income tax until 2028, which should capture more of people's pay as tax as wages rise with inflation.

Despite the record tax receipts, a spokesperson for Prime Minister Rishi Sunak warned not to place "too much emphasis" on a single month's data.

Chancellor Jeremy Hunt said debt was still at the highest level since the 1960s:

"It is vital we stick to our plan to reduce debt over the medium term. Getting debt down will require some tough choices, but it is crucial to reduce the amount spent on debt interest so we can protect our public services."

Higher tax receipts represent a "fiscal tonic", according to think tank

Some commentators view the surplus as a win for the Government just days ahead of his first full budget.

However, the Resolution Foundation pointed out that yearly borrowing is still £7 billion higher than this time last year - nevertheless significantly lower than forecasts of an increase to the deficit of £44bn.

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

"The Chancellor is approaching his upcoming Budget with significantly healthier borrowing levels than was forecast last Autumn.

"However, with borrowing still much higher than last year, and with interest rates likely to remain elevated for some time to come, Jeremy Hunt can't afford to be relaxed about the state of the public finances.

"The extra fiscal headroom should allow him to take on some key issues - namely corporate tax reform, boosting workforce participation and preventing a spike in energy bills this spring."

Surplus casts doubt over economy's strength, says economist

Conversely, Richard Murphy of Tax Research UK believes better-than-expected tax take is a bad sign for the economy.

Referring to the extra £30.6bn tax paid by the public in year to January than the OBR had expcted, Murphy wrote:

"Given that the economy is already under economic pressure from a cost of living crisis, what that means is that the consequence of this overpayment of tax is not good news, but is instead bad news.

"If £30 billion of extra tax has been paid, that is money not available for other use when keeping the economy solvent with readily available cash to fund spending is vital."

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