January is always a good month for the taxman, but this year it has been a bonanza. The latest Office for National Statistics data shows that the Government ran a £30.4 billion surplus in January 2026, more than double the £14.5 billion surplus recorded the previous year. Perhaps the Prime Minister was onto something when he said that this would be the year when Britain starts to turn the corner. Dig under the data, however, and things look less promising.

There are two broad ways to boost tax revenues. One method is to simply raise the level of tax on the existing economic base through higher taxes on income and businesses. This is what Louis XVI’s first minister Anne-Robert-Jacques Turgot famously called trying to “pluck the hen without making it squeal”. The second method is to generate new dynamic sources of revenue through higher levels of economic activity and the creation of new industries. Clearly, the latter option is better than the former.

Britain’s current budget surplus is unfortunately based on Chancellor Rachel Reeves plucking a rather ropey-looking hen. The biggest sources of new revenue have come directly from taking more of taxpayers’ income. The increase in National Insurance has generated an extra £27 billion for the Exchequer so far this financial year. Freezing the tax thresholds has also seen income tax receipts rise by nearly £14 billion. Curiously, Capital Gains Tax revenue has also spiked, increasing by over 40% compared to January last year. Some economists claim this is people selling assets based on rumours of potential changes to CGT this year — hardly a good sign.

More dynamic taxes appear to be flatlining. Revenue from VAT has only increased by 2% compared to last financial year, despite higher inflation which should boost revenues. In fact, VAT receipts were £100 million lower this January than they were last year. Business rates revenue has also been subdued, bringing in only an extra £787 million so far. Higher corporation tax receipts indicate that profits remain steady, but lower VAT revenues indicate that this resilience may be short-lived.

Worryingly for the Chancellor, despite a bumper January she is still below her revenue target. In November, the Office for Budget Responsibility predicted that central government total receipts would be £923 billion by this point, but the latest ONS data shows receipts around £2 billion lower than that. If you remove the sharp unexplained spike in CGT, Reeves would be in serious trouble.

Plucking the hen is fine in the short term, but only if the extra revenue is used to invest in things that can help long-term growth. Using these bumper tax yields to build new infrastructure or increase research expenditure are examples of this approach. Unfortunately, the UK is using record tax revenues not to do that, but instead to pay for day-to-day spending. For example, the OBR says that Government capital investment will be just 0.2% of GDP higher by the end of this parliament, just a tenth of the total increase in overall tax revenues. Increased welfare expenditure and higher day-to-day spending are driving up the tax bill, not an investment boom.

Turgot understood that plucking the hen was not a sustainable strategy. In order to get the French economy back on track he tried public spending cuts, free trade and convincing the aristocracy to pay some taxes. Unfortunately for his boss, this did not pay off. The fiscal crisis ultimately led to Louis XVI finding his head under a guillotine’s blade. Keir Starmer must pray that his chancellor has better ideas for how to solve Britain’s fiscal crisis.

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Andrew O’Brien is the former Director of Policy at the think tank Demos and currently Head of Secretariat of the Independent Commission on Neighbourhoods. He writes in a personal capacity.

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