Government finances in surplus but miss forecasts

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Government finances showed a large surplus last month after a surge in tax receipts but the figure missed forecasts made by the fiscal watchdog.

The surplus - the difference between what the government spends and the tax it takes in - was £15.4bn in January, which is the highest level for the month since records began more than three decades ago.

However, the Office for Budget Responsibility (OBR), which monitors the government's spending plans and performance, had predicted that the surplus would be higher at £20.5bn.

The latest financial figures come at a key time for Chancellor Rachel Reeves, with anaemic economic growth and rising inflation putting pressure on her tax and spending plans.

The OBR will release its latest outlook for the UK economy and public finances on 26 March, when it will detail what headroom the chancellor has against her self-imposed fiscal rules.

Last October, the watchdog said she had £9.9bn in headroom. However, weak economic growth and higher borrowing costs have weighed on that wriggle room, raising the question of whether Reeves will have to raise taxes or cut spending.

The government tends to take more in tax than it spends January compared with other times of the year due to the amount it receives in self-assessed taxes in the month.