Government Income Surplus But Lower Than Expected Puts Pressure on Reeves

The UK government surplus (as we are usually in deficit) is the excess of tax revenue to government over its spending.

January is of course a big tax revenue month as millions of tax payers completed their self assessment tax returns.  January 2025 saw a government surplus of £15.4bn.  This may seem huge, but it was lower than expected and we will move back into deficit over the coming months. 

In addition, we must spend more on defence or compromise the security of this country as a credible military force.  Do not believe the ‘spin’ though.  It was the previous Labour government (Blair/Brown) that drastically reduced our spending on defence to below 3.0% pa and this continued under the following Conservative government.  It was only Margaret Thatcher in the 1980s that actually increased UK spending on defence as a % of GDP to over 5%, following a decline through the 1970s.

All of this means a major headache for the Chancellor as she prepares her Spring Statement, (mini-Budget) due on 26^th March 2025.   Chancellor Reeves was committed to keeping one of her fiscal rules i.e., to not borrow anymore to fund public spending but is this now at risk?  We suggest, if she wants to be a credible Chancellor, she needs to drop this rule.

Comment

Reeves and the Labour Government have backed themselves ‘into a corner’.  Manifesto promises to not increase taxes for working people, leave her little option other than to reduce allowances (e.g., Cash ISAs) and increase taxation in other areas.

Employers have already been hit and cannot take anymore.  Unused pension funds have been hit with being included in the estate on death for inheritance tax, landlords have been continually hit with increasess in stamp duty, reduced expenses relief on mortgage/loan interest costs as well as the coming Renters Reform Act, so where next for the Chancellor?

• Reduce Cash ISA allowances?
• Introduce a Lifetime Cash ISA allowance of say £200,000?
• Increase Capital Gains Tax rates on property and other investments from 18% and 24% to normal income tax rates of 20%, 40%, 45%?
• Increase alcohol, tobacco and fuel duties?
• Reduce benefits?
• Increase VAT?
• Increase corporation taxes?

We believe it is time for the government, finally, to be honest with people, and not just say things to get elected, but increase income taxes for basic rate tax payers to a more realistic level of say 23%-25% and push both employees and self employed national insurance contributions (NIC) up from 8% and 6% repectively, to say 10% and 8%.  Never forget in the 1960s, 70s and early 80s, NIC was at 10% and basic rate income tax was at 30%, falling to 25% under Thatcher.  Workers are not paying enough taxes (compared to our historical rates but also compared to many in Europe today) and we need stop penalising sectors of the economy that will ‘build’ Britain instead of inhibiting them.