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Data released yesterday by the Office for National Statistics showed that public sector net borrowing, excluding financial interventions, had a surplus of £3.7 billion in January 2011 – £5bn lower than the same month a year ago.

The reported surplus this month was the largest since July 2008. Over the financial year to date, borrowing has come in at £118.4bn, compared with £126.8bn over the previous financial year.

While current expenditure in January 2011 was slightly up on a year ago – at £50.5bn compared with £48.4bn – this was more than offset by a 12.3 per cent increase in government receipts from £52bn to £58.4bn.

VAT receipts were up 8.4 per cent in January 2011 compared with January 2010, probably a reflection of the VAT rise to 20 per cent last month in addition to strong retail sales data. Moreover, taxes on income and wealth were up 17.4 per cent on a year ago.

The public finances release marks the first significant turnaround in the public finances this financial year.

Despite ongoing concerns about the fragility of the recovery, tax receipts have risen this month and this has led to a significant reduction in net borrowing. Of course, the government still has a long way to go in meeting its ambition to eliminate the bulk of the structural deficit over the parliamentary term, though it looks like its fiscal targets for this financial year will be met.

The Chancellor, below, may be pressured into making some tax giveaways in next month’s Budget – in particular axing the planned 1p fuel duty hike in April – as a means of helping households who are struggling with the pressures of weak income growth and above-target consumer price inflation.

Such giveaways would help curb inflation and support growth, although they would make current deficit reduction targets less achievable.

l Scott Corfe is an economist with the Centre for Economic Business Research.