20th February 2026
January 2026 delivered a mixed but revealing picture of the UK's public finances, showing both short‑term improvement and long‑term structural pressures.
Government borrowing fell compared with last year, tax receipts continued to rise, and some spending categories stabilised but debt remained historically high, interest payments continued to weigh heavily on the budget, and local authorities faced ongoing financial strain.
Below is a comprehensive breakdown of the main themes.
1. Borrowing: Lower Than Last Year, But Still Historically High
Public sector net borrowing (excluding public sector banks) fell compared with January 2025, reflecting stronger tax receipts and slightly lower spending in some areas. January is traditionally a strong month for government finances because of self‑assessment tax receipts, and 2026 followed that pattern.
However:
Borrowing remained well above pre‑pandemic norms.
The government continued to borrow more than the Office for Budget Responsibility (OBR) had forecast earlier in the fiscal year.
Rising welfare costs and debt interest payments limited the improvement.
In short: the month looked good on paper, but the underlying fiscal position remains stretched.
2. Tax Receipts: Strong Growth Driven by Income Tax and VAT
Tax revenues were a major driver of the improved monthly position.
Key contributors included:
Income tax and National Insurance — boosted by wage growth and fiscal drag.
VAT receipts — supported by higher nominal consumer spending.
Corporation tax — stable but not significantly higher.
Self‑assessment receipts in January were particularly strong, reflecting both higher incomes and the frozen tax thresholds that pull more people into higher tax bands.
This is good for the Treasury, but it also reflects the pressure on households who are paying more tax without necessarily feeling better off.
3. Spending: Some Stabilisation, But Pressures Remain
Government spending grew more slowly than in previous months, but several areas continued to exert pressure:
Debt Interest Payments
Still elevated due to:
high stock of government debt
index‑linked gilts responding to past inflation
higher interest rates feeding through to refinancing
Interest payments remained one of the largest and most volatile spending lines.
Health and Social Care
Spending continued to rise, driven by:
NHS backlogs
higher staffing costs
social care pressures
Local Government
Many councils continued to report severe financial strain, with some issuing or warning of Section 114 notices. Central government support increased slightly but remained insufficient to offset structural funding gaps.
4. Public Sector Net Debt: Still Rising
Despite lower borrowing in January, public sector net debt continued to climb, reaching close to or above 97-98% of GDP (depending on the exact measure used).
This reflects:
accumulated borrowing from the pandemic
ongoing structural deficits
higher interest costs
weak productivity growth
Debt is now at levels not seen since the early 1960s.
5. Public Sector Net Cash Requirement (PSNCR)
The government's cash requirement — the amount it needs to borrow to fund day‑to‑day operations — remained high. This reflects:
refinancing of maturing debt
cash‑flow pressures
seasonal spending patterns
Even with strong January tax receipts, the cash position remained tight.
6. Central Government Receipts and Expenditure
Receipts
Up significantly year‑on‑year
Driven by income tax, VAT, and PAYE
Supported by nominal wage growth and inflation‑linked tax bases
Expenditure
Up year‑on‑year
Driven by welfare, health, and debt interest
Capital spending relatively flat
The gap between receipts and spending narrowed in January but remains wide over the fiscal year.
7. Local Government and Public Corporations
Local Government
Continued financial distress
Rising social care costs
Reduced reserves
Reliance on emergency support from central government
Public Corporations
Rail sector continued to require substantial subsidy
Energy‑related public bodies saw volatility due to market conditions
8. Comparison With Previous Months
Compared with late 2025:
Borrowing in January was lower than in November and December.
Tax receipts were significantly higher, as expected for January.
Spending growth slowed slightly but remained elevated.
Debt continued its upward trend, unaffected by the monthly improvement.
The overall picture: January was a good month in a difficult year.
9. What This Means for Households and Businesses
For Households
Higher tax receipts reflect fiscal drag: people are paying more tax even if their real incomes haven't risen.
Public services remain under pressure, especially councils and the NHS.
High government debt and interest payments reduce fiscal space for tax cuts or spending increases.
Inflation may be easing, but the fiscal environment remains tight.
For Businesses
Strong VAT receipts suggest nominal spending is holding up, but real demand remains fragile.
Continued government borrowing may keep interest rates higher for longer.
Public‑sector procurement budgets remain constrained, affecting contractors.
Local authority distress poses risks for suppliers dependent on council contracts.
10. The Big Picture
January 2026 shows a government benefiting from strong tax receipts but still grappling with:
historically high debt
elevated interest payments
structural spending pressures
weak productivity
fragile public services
The monthly improvement is welcome, but it does not change the long‑term fiscal challenge.
Main points
Initial estimates show that the public sector recorded a £30.4 billion surplus in January 2026, £15.9 billion higher than, or double that of January 2025, and £6.3 billion above the Office for Budget Responsibility's November 2025 forecast; the highest surplus in any month since records began in 1993 (not adjusted for inflation).
In January, tax receipts are always higher than in other months, because of receipts from self-assessed taxes; combined self-assessed Income and Capital Gains Tax receipts were provisionally estimated at £46.4 billion in January 2026, £10.5 billion more than January 2025.
Borrowing in the financial year to January 2026 was £112.1 billion; this was £14.6 billion or 11.5% less than in the same 10-month period a year ago, but still the fifth-highest April to January borrowing on record (not adjusted for inflation).
Borrowing in the financial year to January 2026 was provisionally estimated at 3.7% of gross domestic product (GDP); this was 0.7 percentage points less than in the same 10-month period a year ago.
The current budget - borrowing to fund day-to-day public sector activities - was in surplus by £40.9 billion in January 2026; this brings the total current budget deficit in the financial year to January 2026 to £55.9 billion, which is £18.0 billion or 24.3% less than in the same 10-month period a year ago.
Public sector net debt excluding public sector banks - a measure of the amount of money owed to the UK private sector and overseas less any liquid assets held - was provisionally estimated at 92.9% of GDP at the end of January 2026 and remains at levels last seen in the early 1960s.
Public sector net financial liabilities excluding public sector banks - which considers a wider range of financial assets and liabilities than net debt - were provisionally estimated at 82.4% of GDP at the end of January 2026, 10.5 percentage points less than for public sector net debt.
Central government net cash requirement (excluding UK Asset Resolution Ltd and Network Rail) - the additional cash needed to be raised from the financial markets to finance activities - was in surplus by £39.8 billion in January 2026; this was a £24.6 billion or 161.4% larger surplus than in January 2025.
Read the full ONS report HERE