A prominent economic think tank has issued a stark warning that the UK achieving net zero migration would likely shrink the economy and necessitate tax increases to address a significant funding shortfall. The National Institute of Economic and Social Research (Niesr) detailed these concerns in its latest economic outlook report, highlighting substantial pressure on the nation's public finances.
Economic Contraction and Fiscal Pressure
The analysis from Niesr, an institute independent of party-political interests, projects that a scenario of net zero migration would slow employment growth considerably. This policy would lead to a smaller proportion of working-age people within the population, directly resulting in lower overall tax revenues for the Treasury.
In the long term, this diminished fiscal intake would leave the government with a growing funding gap. To bridge this shortfall, policymakers would face the difficult choice of either raising taxes or increasing public borrowing. The institute's modelling suggests that by the year 2040, higher borrowing could increase the budget deficit by approximately 0.8% of Gross Domestic Product (GDP). In today's prices, this equates to a staggering sum of around £37 billion.
Contrasting Scenarios: Zero vs. Positive Migration
The report presents a clear contrast between two potential futures. If net migration were to remain at a positive level, a larger working-age population would naturally broaden the tax base. This scenario would provide more stable revenues and help stabilise the critical debt-to-GDP ratio, offering a firmer foundation for public finances.
Conversely, the net zero migration path presents a more challenging outlook. The latest official figures indicate that net migration dropped to 204,000 in the year to June, representing a substantial 69% decrease year-on-year. Some forecasters now suggest Britain could reach net zero migration before the decade's end, making this analysis particularly timely. Net migration is defined as the difference between the number of people moving to the country long-term and the number of people leaving; it reaches zero when arrivals and departures are equal.
Expert Commentary and Broader Economic Forecast
Stephen Millard, Niesr’s Deputy Director for Macroeconomics, emphasised the gravity of the findings. "Our analysis clearly shows that net zero migration would put pressure on the public finances and worsen the public debt outlook," he stated. "Unlike Japan, the United Kingdom lacks the institutional and financial conditions to support a substantially higher debt ratio. We therefore recommend the Government makes a concerted effort to get public debt down, so it has room to respond to a sharp fall in migration or any other negative shock happening to the UK economy."
Elsewhere in its comprehensive report, Niesr has revised its economic growth forecast for the UK downwards. The think tank now expects GDP growth of 1.4% for 2025, a slight reduction from the 1.5% it forecast in November. Looking further ahead, it predicts the economy will slow to growth rates of 1.3% in 2027 and 1.1% in 2028, attributing this deceleration to anticipated tax rises and a fall in government spending growth.
Labour Market and Monetary Policy Projections
The institute's outlook also covers the labour market and interest rates. Niesr forecasts that the rate of unemployment will rise to a peak of 5.5% in the second half of 2026, before beginning a gradual decline in subsequent years. On monetary policy, the think tank is predicting two cuts to interest rates within the current year. It anticipates that rates will be brought down to 3.25% by the end of 2026, a move expected to coincide with a continued fall in inflation.
This detailed analysis underscores the complex interplay between migration policy, demographic trends, and economic stability, presenting policymakers with significant long-term challenges for the UK's fiscal health.
