Raphael Stevens

Nazem Ahmad, an art collector and financier, who owns work by Andy Warhol and Pablo Picasso, has been under American sanctions since 2019. That may sound like a problem, but it has not stopped him from smuggling half a billion or so dollars for Hizbullah, a Lebanese militant group, according to America’s Treasury. He moves art, cash and gems across borders via galleries in the Ivory Coast, family offices in the UAE and portfolio firms in Hong Kong. His financial tapestry is underpinned by bank accounts in America.All of this displeases Western policymakers, who are trying to make sanctions more stringent. Mr Ahmad is one of several magnates on whom sanctions have been adjusted. The EU’s 13th wave of measures against Russia, agreed on February 21st, will punish Chinese and Indian firms for supplying Vladimir Putin with weaponry and other banned goods. President Joe Biden has announced that foreign banks settling payments for such goods could be next, and is planning more sanctions on Russia after the death of Alexei Navalny, an opposition politician, on February 16th. In recent years measures have been applied to everyone from Houthis holding up Red Sea traffic to Israeli settlers building illegally in the West Bank and companies helping strengthen China’s armed forces.Thus the world is witnessing an unprecedented surge in financial warfare. But just as the West rachets up sanctions, ways to circumvent them are becoming more sophisticated. Visit any country that courts the West’s business without buying into its principles, and you will find companies and people—hailing from China, Russia and the Middle East—under sanction and getting business done. Since the West first retaliated against Russia’s invasion of Ukraine, it is places such as India, Indonesia and the UAE that have thwarted America and Europe’s aims, and have done so without giving up access to the dollar.Any enemy of the West faces a mixture of measures. Most common are trade embargoes, under which Iran and Russia labour. American companies are banned from exporting anything that could be repurposed by Russia’s army, which includes everything from drones to ball-bearings. Import restrictions on commodities, such as the $60 a barrel price cap imposed on Russian oil by American and Europe, are meant to weaken hostile powers. Bans on doing business with governments, as also apply to Iran and Russia, are supposed to further cripple their ability to fight.On top of these are financial sanctions. Western officials keep blacklists, which apply varying restrictions to how their citizens may deal with designated firms and people. Ships that carry Iranian oil are on America’s list, as are Hamas’s leaders and financiers for Latin American drug empires. Sometimes individuals’ assets are frozen; sometimes entire banks are banned. Russia’s central-bank reserves in Europe (half its total) have been frozen, 80% of its banks are subject to sanctions and seven are locked out of SWIFT, a messaging service used to make transactions.Yet all these measures must contend with the growing prosperity and financial sophistication of “third countries”—those that neither impose American and European sanctions, nor are under sanctions themselves. The 120 members of the “non-aligned movement”, which include Brazil and India, produced 38% of global GDP in 2022, up from 15% in 1990. They are home to five of the world’s 20 most important financial hubs, based on the number and variety of banks, and churn out lots that a modern army might need. Whereas financial crises in the 1980s and 1990s drove entire continents to borrow from the IMF, today these countries have robust financial systems. With international firms trying to avoid tensions between America and China, sitting on the fence is not only possible, but often profitable.Brazil, India and Mexico all declined to participate in the West’s economic war soon after Russia invaded Ukraine. Indonesia’s foreign-affairs spokesman explained that the country “will not blindly follow the steps taken by another country”. Yet neutrality is a delicate game. Although, for instance, America can do little about Russia importing more tech from China, it can make life difficult for some financial institutions that might help the trade. Hostility to America’s actions among third countries combines with reliance on the superpower’s financial system to produce a strange patchwork: in some places sanctions are insurmountable; in others they may as well be non-existent.Bite the bulletCommodity-import bans are the measure most obviously hindered by non-aligned countries. Although the purchase of Iran’s oil is restricted by America, its exports are nevertheless at an all-time high. Countries that are not party to the West’s price cap on Russian oil, which are together home to half the world’s population, are willing to pay more than $60 a barrel. Brazil, China and India have all bought more since Russia’s invasion of Ukraine. Many of the country’s biggest customers, including the UAE and Turkey, import its cheap fuel for domestic use at the same time as exporting their own more expensive non-embargoed oil. In 2022 China, India, Singapore, Turkey and the UAE together imported $50bn more oil from Russia than in 2021. Meanwhile, the value of the EU’s oil imports from these countries increased by $20bn.image: The EconomistLegitimate trade helps hide goods that end up furnishing a bomb or tank. As a result, half the military equipment gathered by Russia last year contained some Western tech. Indeed, Russia imported more than $1bn-worth of chips designed in the West—all of which should have been beyond its reach. European exports to Central Asia more than doubled from 2021 to 2023. The region’s fastest-growing industry is logistics, which expanded by 20% in 2023. It is not difficult to guess the final destination for many of these goods.America’s recent tougher stance has made dodging trade sanctions harder. It helps that earlier rules are also starting to bite. Half the ships that belong to Western firms and once ferried Russia’s oil have turned to new work. And Mr Biden has now given officials authority to put “secondary sanctions”—that apply to outfits outside either America or its adversary—on banks which help smuggle military tech to Russia. According to Bloomberg, a news service, two state-owned Chinese financial institutions have since stopped taking Russian payment for forbidden items.image: The EconomistYet lots of business has moved beyond the West’s reach. When America and Europe banned firms from insuring ships that carry Russian oil if it sells above their price limit, India and Russia established their own insurers. Russia’s shadow fleet now carries 75% of its oil shipments. At the same time, trade between Russia and the West via places such as Central Asia to Thailand is only growing as firms have more time to set up shop.When it comes to financial measures, third countries facilitate sanctions-dodging in two ways. The first is by expanding the options open to the West’s enemies. Institutions in America and Europe are banned from settling transactions that involve anything on blacklists, on pain of incurring sanctions themselves. Yet, in most cases, once cash leaves the West, blacklists carry no threat. Dubai’s financial industry has grown faster than any other over the past decade, with the exception of Shenzhen, and its expansion has been fuelled by grey money. Other important hubs include Hong Kong and São Paulo.Many third countries participate in rouble- and yuan-based payment systems—efforts by Russia and China to build dollar alternatives. The UAE and Russia have teamed up to work on a rouble-based payment system that will be regulated from Dubai. And Indonesia is participating in trials for China’s international digital currency. Although these efforts sound fearsome, the reality is less terrible. Just as many of the world’s transactions are settled in dollars and euros as on the eve Russia’s invasion of Ukraine. This is often seen as a victory for the West: the dollar, and therefore surely the West’s arsenal of financial weaponry, remains dominant.Yet there is a second, increasingly important way in which third countries thwart the West: they facilitate evasion while still using the dollar. Some foreign banks are much more relaxed about scrutiny than their American and European peers, and more of their business is now done without touching American shores. Whereas they used to rely on American branches for dollar funding, now they have $13trn—equivalent to more than half of the dollar liabilities of America’s banking system—borrowed from offshore sources. Without co-operation from these institutions, it is difficult for Western banks to work out when something is off, meaning that sanctions fail to make use of the West’s financial sprawl. Rules often contain carve-outs: funds are allowed to reach Iran for humanitarian aid, for instance, and Russia for agricultural transactions. Several people under sanction report that it is common practice to mislabel funds. America has accused Kuveyt Turk—among the biggest banks in Turkey—of similar tricks, which it has denied. The EU reckons that Varengold Bank, a German institution, allowed millions of dollars to pass to Iran’s Islamic Revolutionary Guard Corps through third countries, on the grounds it was food aid. Varengold denies wrongdoing and says that the money was desperately needed to alleviate suffering. Botched identification checks also help. More than 1,000 Russian firms have set up shop in Turkey since 2022, as well as 500 in the UAE, many of which Western officials think are fronts for others under sanctions. As lots are registered in “free zones”, meant to tempt business with a lack of red tape, it is hard to know for sure. Two years ago, a Singapore-based network of firms was punished for ferrying billions of dollars of payments for Iranian oil. It re-emerged in Dubai, using a mixture of Turkish, Singaporean and UAE-based firms to open American bank accounts.Many third-country governments have a laissez-faire attitude to sanctions-breaking, or even tacitly approve of it. Indonesia and the UAE are on the greylist of the Financial Action Task Force, an international regulator, in part because they are accused of knowing about the bad behaviour of local banks. When asked whether the UAE thinks that some of its 500 new firms could be evading sanctions, a European official shrugs: “They know, they just don’t care.”The increasing commercial importance of these countries has both raised the costs and lowered the benefits of Western sanctions. American and European capital can now take advantage of investment opportunities abroad. Companies and individuals under sanction now have more places in which they can do business. What, then, can the West do?Western leaders have so far shied away from the most drastic measures. Mr Biden has said that he will eject foreign banks from America’s financial system if they help provide Russia with weaponry. But he has declined to issue the same threat over anything else, and the willingness of his officials to enforce it remains to be seen. Similar moves in the past have targeted tiny banks and been enforced in conjunction with local authorities. Doing the same with big banks over which America has no legal power would mean lots of guesswork. European officials say that it often takes 30 steps along a financial chain to trace the owner of a foreign bank account—ten times more than a decade ago. And if America made greater use of such measures it would risk brutal fights with allies such as Turkey and Indonesia.More American action might reduce evasion in places that use the dollar, but at the cost of encouraging it everywhere else. During, say, the 1990s, countries relied on America’s financial system because it reached everywhere in the world, imposed relatively few costs and there was no alternative. All three reasons have become less convincing as financial warfare has become more intense. They would become still less convincing should American policymakers begin to intervene more often beyond their jurisdiction. Not all that much capital needs to flee to alternative financial systems built by rival countries, such as China, for sanctions, which already target a tiny portion of the world’s transactions, to lose even more power. The West’s campaign to reassert its dominance over the global financial system could see it lose control, once and for all. ■ More

The discussion came as policymakers not only decided to leave their key overnight borrowing rate unchanged but also altered the post-meeting statement to indicate that no cuts would be coming until the rate-setting Federal Open Market Committee held “greater confidence” that inflation was receding.
The meeting summary indicated a general sense of optimism that the Fed’s policy moves had succeeded in lowering the rate of inflation, which in mid-2022 hit its highest level in more than 40 years.
However, officials noted that they wanted to see more before starting to ease policy while saying that rate hikes are likely over. Members cited the “risks of moving too quickly” on cuts.

WASHINGTON – Federal Reserve officials indicated at their last meeting that they were in no hurry to cut interest rates and expressed both optimism and caution on inflation, according to minutes from the session released Wednesday.
The discussion came as policymakers not only decided to leave their key overnight borrowing rate unchanged but also altered the post-meeting statement to indicate that no cuts would be coming until the rate-setting Federal Open Market Committee held “greater confidence” that inflation was receding.

“Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent,” the minutes stated.
The meeting summary did indicate a general sense of optimism that the Fed’s policy moves had succeeded in lowering the rate of inflation, which in mid-2022 hit its highest level in more than 40 years.
However, officials noted that they wanted to see more before starting to ease policy, while saying that rate hikes are likely over.
“In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle,” the minutes stated. But, “Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.”
Before the meeting, a string of reports showed that inflation, while still elevated, was moving back toward the Fed’s 2% target. While the minutes assessed the “solid progress” being made, the committee viewed some of that progress as “idiosyncratic” and possibly due to factors that won’t last.

Consequently, members said they will “carefully assess” incoming data to judge where inflation is heading over the longer term. Officials noted both upside and downside risks and worried about lowering rates too quickly.

Questions over how quickly to move

“Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained,” the summary said.
Officials “remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices,” the minutes said. “While the inflation data had indicated significant disinflation in the second half of last year, participants observed that they would be carefully assessing incoming data in judging whether inflation was moving down sustainably toward 2 percent.”
The minutes reflected an internal debate over how quickly the Fed will want to move considering the uncertainty about the outlook.
Since the Jan. 30-31 meeting, the cautionary approach has borne out as separate readings on consumer and producer prices showed inflation running hotter than expected and still well ahead of the Fed’s 2% 12-month target.
Multiple officials in recent weeks have indicated a patient approach toward loosening monetary policy. A stable economy, which grew at a 2.5% annualized pace in 2023, has encouraged FOMC members that the succession of 11 interest rate hikes implemented in 2022 and 2023 have not substantially hampered growth.
To the contrary, the U.S. labor market has continued to expand at a brisk pace, adding 353,000 nonfarm payroll positions in January. First-quarter economic data thus far is pointing to GDP growth of 2.9%, according to the Atlanta Fed.
Along with the discussion on rates, members also brought up the bond holdings on the Fed’s balance sheet. Since June 2022, the central bank has allowed more than $1.3 trillion in Treasurys and mortgage-backed securities to roll off rather than reinvesting proceeds as usual.

‘Ample level of reserves’

The minutes indicated that a more in-depth discussion will take place at the March meeting. Policymakers also indicated at the January meeting that they are likely to take a go-slow approach on a process nicknamed “quantitative tightening.” The pertinent question is how high reserve holdings will need to be to satisfy banks’ needs. The Fed characterizes the current level as “ample.”
“Some participants remarked that, given the uncertainty surrounding estimates of the ample level of reserves, slowing the pace of runoff could help smooth the transition to that level of reserves or could allow the Committee to continue balance sheet runoff for longer,” the minutes said. “In addition, a few participants noted that the process of balance sheet runoff could continue for some time even after the Committee begins to reduce the target range for the federal funds rate.”
Fed officials consider current policy to be restrictive, so the big question going forward will be how much it will need to be relaxed both to support growth and control inflation.
There is some concern that growth continues to be too fast.
The consumer price index rose 3.1% on a 12-month basis in January – 3.9% when excluding food and energy, the latter of which posted a big decline during the month. So-called sticky CPI, which weighs toward housing and other prices that don’t fluctuate as much, rose 4.6%, according to the Atlanta Fed. Producer prices increased 0.3% on a monthly basis, well above Wall Street expectations.
In an interview on CBS’ “60 Minutes” that aired just a few days after the FOMC meeting, Chair Jerome Powell said, “With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully.” He added that he is looking for “more evidence that inflation is moving sustainably down to 2%.”
Markets have since had to recalibrate their expectations for rate cuts.
Where traders in the fed funds futures market had been pricing in a near lock for a March cut, that has been pushed out to June. The expected level of cuts for the full year had been reduced to four from six. FOMC officials in December projected three.
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Capital One’s recently announced $35.3 billion acquisition of Discover Financial is a bid to protect itself against a rising tide of fintech and regulatory threats.
The deal, if approved, enables Capital One to leapfrog JPMorgan as the biggest credit card company by loans, and solidifies its position as the third largest by purchase volume.
But it’s Discover’s payments network — the “rails” that shuffle digital dollars between consumers and merchants, collecting tolls along the way — that is key to understanding this deal.

Capital One CEO and Chairman, Richard Fairbank.
Marvin Joseph| The Washington Post | Getty Images

Capital One’s recently announced $35.3 billion acquisition of Discover Financial isn’t just about getting bigger — gaining “scale” in Wall Street-speak — it’s a bid to protect itself against a rising tide of fintech and regulatory threats.
It’s a chess move by one of the savviest long-term thinkers in American finance, Capital One CEO Richard Fairbank. As a co-founder of a top 10 U.S. bank by assets, his tenure is a rarity in a banking world dominated by institutions like JPMorgan Chase that trace their origins to shortly after the signing of the Declaration of Independence.

Fairbank, who became a billionaire by building Capital One into a credit card giant since its 1994 IPO, is betting that buying rival card company Discover will better position the company for global payments’ murky future. The industry is a dynamic web where players of all stripes — from traditional banks to fintech players and tech giants — are all seeking to stake out a corner in a market worth trillions of dollars by eating into incumbents’ share amid the rapid growth of e-commerce and digital payments.
“This deal gives the company a stronger hand to battle other banks, fintechs and big tech companies,” said Sanjay Sakhrani, the veteran KBW retail finance analyst. “The more that they can separate themselves from the pack, the more they can future-proof themselves.”
The deal, if approved, enables Capital One to leapfrog JPMorgan as the biggest credit card company by loans, and solidifies its position as the third largest by purchase volume. It also adds heft to Capital One’s banking operations with $109 billion in total deposits from Discover’s digital bank and helps the combined entity shave $1.5 billion in expenses by 2027.

‘Holy Grail’

But it’s Discover’s payments network — the “rails” that shuffle digital dollars between consumers and merchants, collecting tolls along the way — that Fairbank repeatedly praised Tuesday when analysts queried him on the strategic merits of the deal. There are only four major card networks: giants Visa and Mastercard, then American Express and finally the smallest of the group, Discover.

Capital One and Discover credit cards arranged in Germantown, New York, US, on Tuesday, Feb. 20, 2024. 
Angus Mordant | Bloomberg | Getty Images

“That network is a very, very rare asset,” Fairbank said. “We have always had a belief that the Holy Grail is to be able to be an issuer with one’s own network so that one can deal directly with merchants.”

From the time of Capital One’s founding in the late 1980s, Fairbank said, he envisioned creating a global digital payments tech company by owning the payment rails and dealing directly with merchants. In the decades since, Capital One has been ahead of stodgier banks, gaining a reputation in tech circles for being forward-thinking and for its early adoption of cloud computing and agile software development.
But its growth has relied on Visa and Mastercard, which accounted for the vast majority of payment volumes last year, processing nearly $10 trillion in the U.S. between them.
Capital One intends to boost the Discover network, which carried $550 billion in transactions last year, by quickly switching all of its debit volume there, as well as a growing share of its credit card flows over time.
By 2027, the bank expects to add at least $175 billion in payments and 25 million of its cardholders onto the Discover network.

Owning the toll road

The true potential of the Discover deal, though, is what it allows Capital One to do in the future if it owns the toll road, according to analysts.
By creating an end-to-end ecosystem that is more of a closed loop between shoppers and merchants, it could fend off competition from rapidly mutating fintech players like Block and PayPal, as well as buy now, pay later firms like Affirm and Klarna, who have made inroads with both businesses and consumers.
Capital One aims to deepen relationships with merchants by showing them how to boost sales, helping them prevent fraud and providing data insights, Fairbank said Tuesday, all of which makes them harder to dislodge. It can use some of the network fees to create new loyalty plans, like debit rewards programs, or underwrite merchant incentives or experiences, according to analysts.
“Owning a network allows us to deal more directly with merchants rather than a network intermediary,” Fairbank told analysts. “We create more value for merchants, small businesses and consumers and capture the additional economics from vertical integration.”
It’s a capability that technology or fintech companies probably covet. The Discover network alone would be worth up to $6 billion if sold to Alphabet, Apple or Fiserv, Sakhrani wrote Tuesday in a research note.

Will regulators approve?

The Capital One-Discover combination could fortify the company against another potential threat — from Washington.
Proposed legislation from Sen. Dick Durbin, D-Ill., aims to cap the fees charged by Visa and Mastercard, potentially blowing up the economics of credit card rewards programs. If that proposal becomes law, the competitive position of Discover’s network, which is exempt from the limitations, suddenly improves, according to Brian Graham, co-founder of advisory firm Klaros Group. That mirrors what an earlier law known as the Durbin amendment did for debit cards.

Chairman Dick Durbin (D-IL) speaks during a US Senate Judiciary Committee hearing regarding Supreme Court ethics reform, on Capitol Hill in Washington, DC, on May 2, 2023.
Mandel Ngan | AFP | Getty Images

“There are a bunch of things aimed, in one way or another, at the card networks and that ecosystem,” Graham said. “Those pressures might be one of the things that creates an opportunity for Capital One in the future if they have control over this network.”
The biggest question for Capital One, its customers and investors is whether the merger will ultimately be approved by regulators. While Fairbank said he expects the deal to be closed in late 2024 or early 2025, industry experts said it was impossible to know whether it will be blocked by regulators, like a string of high-profile takeovers among banks, airlines and tech companies.
On Tuesday, Democratic Sen. Elizabeth Warren of Massachusetts urged regulators to swiftly block the deal, calling it “dangerous.” Sen. Sherrod Brown, D-Ohio, chairman of the Senate Banking Committee, said he would be watching the deal to “ensure that this merger doesn’t enrich shareholders and executives at the expense of consumers and small businesses.”
The Discover deal’s survival may hinge on whether it’s seen as boosting an also-ran payments network, or allowing an already-dominant card lender to level up in size — another reason Fairbank may have played up the importance of the network.
“Which thing you are more concerned about will define whether you think this is a good deal or a bad deal from a public policy point of view,” Graham said.
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HSBC pre-tax profit climbed about 78% to $30.3 billion in 2023 from a year earlier, but missed median estimates of $34.06 billion from analysts tracked by LSEG.
Chief Executive Noel Quinn also announced an additional share buyback of up to $2 billion to be completed by the bank’s next quarterly report.

Customers use automated teller machines (ATM) at an HSBC Holdings Plc bank branch at night in Hong Kong, China, on Saturday, Feb 16, 2019.
Anthony Kwan | Bloomberg | Getty Images

HSBC’s full-year 2023 pretax profit missed analysts’ estimates on Wednesday, hit by impairment costs linked to the lender’s stake in a Chinese bank, sinking its London-listed shares as much as 7%.
Europe’s largest bank by assets saw its pre-tax profit climb about 78% to a record $30.3 billion in 2023 from a year ago, according to its statement released Wednesday during the mid-day trading break in Hong Kong. That missed median estimates of $34.06 billion from analysts tracked by LSEG.

Chief Executive Noel Quinn also announced an additional share buyback of up to $2 billion to be completed ahead of the bank’s next quarterly earnings report. HSBC also said it would consider offering a special dividend of 21 cents per share in the first half of 2024 after it completes the sale of its Canada business.
With the highest full-year dividend per share since 2008 and three share buy-backs in 2023 totaling $7 billion, Quinn said the bank returned $19 billion to shareholders last year.
Quinn’s remuneration doubled to $10.6 million in 2023 from $5.6 million the year before, boosted in part by variable long-term incentives since his appointment in 2020.
HSBC suffered a “valuation adjustment” of $3 billion on its 19% stake in China’s Bank of Communications, Quinn said. In an interview with CNBC following the earnings release, he said this is “a technical accounting adjustment” and “not a reflection” on BoComm.
This write-down was among the items that plunged the bank’s fourth-quarter pretax profit by 80% to $1 billion from a year earlier.

HSBC’s Hong Kong shares reversed gains of about 1% after trading resumed, falling as much as 5%. The benchmark Hang Seng Index was up about 2%. Shares in London were down around 7% in early deals, set for their biggest one-day drop since 2020, according to Reuters.

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HSBC shares

Here are the other highlights of the bank’s full year 2023 financial report card:

Revenue for 2023 increased by 30% to $66.1 billion, compared with the median LSEG forecast for about $66 billion.
Net interest margin, a measure of lending profitability, was 1.66% — compared with 1.48% in 2022.
Common equity tier 1 ratio — which measures the bank’s capital in relation to its assets — was 14.8%, compared with 14.2% in 2022.
Basic earnings per share was $1.15, compared with the median LSEG forecast for $1.28 in 2023 and 75 cents for 2022.
Dividend per ordinary share was 61 cents — the highest since 2008 — compared with 32 cents in 2022.

Outlook 2024

HSBC, which has a second home in Hong Kong, said it was focusing on the fastest growing parts of Asia, a continent where the bank makes most of its profits.
In an earnings briefing to investors and analysts, the bank said it has completed the sale of its businesses in France, Oman, Greece and New Zealand, and was in the process of exiting Russia, Canada, Mauritius and Armenia.

The bank flagged two key macroeconomic trends: declining interest rates as inflation ebbs — a development that could eat into its interest income; and a continued reconfiguration of global supply chains and trade.
“International expansion remains a core strategy for corporates and institutions seeking to develop and expand, especially the mid-market corporates that HSBC is very well-positioned to serve. Rather than de-globalizing, we are seeing the world re-globalize, as supply chains change and intraregional trade flows increase,” Quinn said in the earnings statement.
The bank is targeting a mid-teens return on tangible equity for 2024, which was about 14.5% last year.
HSBC said it will be focusing on an expansion of non-interest income revenue sources via its wealth and transaction banking business. It is expecting banking non interest income of at least $41 billion in financial year 2024.
HSBC said it’s cautious about the loan growth outlook for the first half of 2024 amid economic uncertainty, expecting a mid-single digit annual percentage growth over the medium to long term. More

The Office for National Statistics noted that the country’s public finances usually run a surplus in January, unlike in other months, as receipts from self-assessed annual income tax payments come in.
Total government tax receipts came in at a record £90.8 billion, up £2.9 billion compared to January 2023.
The figures of Wednesday mark the final set of public finances data before Finance Minister Jeremy Hunt delivers his Spring Budget on March 6.

Jeremy Hunt, UK chancellor of the exchequer, holding the despatch box as he stands with treasury colleagues outside 11 Downing Street in London, UK..
Bloomberg | Bloomberg | Getty Images

LONDON — The U.K. logged a record £16.7 billion ($21.1 billion) net budget surplus in January, according to official figures released on Wednesday.
The Office for National Statistics noted that the country’s public finances usually run a surplus in January, unlike during other months, as receipts from self-assessed annual income tax payments come in.

Combined self-assessed income and capital gains tax receipts totaled £33 billion in January, the ONS said, down £1.8 billion from the same period of last year.
Total government tax receipts came in at a record £90.8 billion, up £2.9 billion compared to January 2023.
Government borrowing during the financial year spanning to the end of January 2024 was £96.6 billion, £3.1 billion lower than over the same 10-month period a year ago and £9.2 billion lower than the £105.8 billion previously forecast by the independent Office for Budget Responsibility.

Public debt was estimated at around 96.5% of annual gross domestic product, up 1.8 percentage points from January 2023 and holding at levels last seen in the early 1960s, the ONS highlighted.
“We provided hundreds of billions to pay wages, support business and protect lives during Covid, and to pay half of people’s energy bills after Putin’s invasion of Ukraine,” the government’s chief secretary to the Treasury, Laura Trott, said in a statement.

“But we can’t leave future generations to pick up the tab, which is why we have taken tough decisions to help reduce borrowing versus what the OBR expected in March.”
The figures on Wednesday mark the final set of public finances data before Finance Minister Jeremy Hunt delivers his Spring Budget, which outlines the government’s fiscal policy for the year, on March 6.
With a general election due before the end of January 2025 and the main opposition Labour Party leading by more than 20 points in the polls, there has been much speculation about whether Hunt will try to find the headroom for tax cuts next month.

“With recent U.K. by-election results suggesting that the Labour party continues to have the advantage as we head towards the general election, Hunt will be under pressure to offer tax cuts,” said Lindsay James, investment strategist at Quilter Investors.
“However, with his hands largely tied by the state of the nation’s finances, investors must be realistic about the prospects for the extent of this, or prepare for more savage cuts to the U.K.’s already under-strain public services.”
Despite the record January surplus, weaker-than-expected self-assessment receipts meant the figure was actually slightly below that forecast by the OBR in November.
However, Hunt will take solace in the downside revision to borrowing figures over the first 10 months of the financial year, according to Martin Mikloš, research economist at the Institute for Fiscal Studies.
“While lower borrowing over the last ten months is welcome news, as the OBR prepares a new set of forecasts for the upcoming March Budget much more important will be the judgement they make on the outlook for growth and inflation,” Mikloš said.
“With public services under strain, pressures to offset some of the record-breaking tax rise seen since 2019, and the need for a credible plan to get debt on a falling path the Chancellor’s forthcoming Budget will not be an easy one to navigate.” More