The UK economy will be 3.6% smaller in 2040 if net migration falls to zero, forcing the government to raise taxes to overcome a bigger budget deficit, a thinktank has predicted.
The National Institute of Economic and Social Research (NIESR) said that the decline in the number of births in the UK and a sharp reduction in net migration last year led it to consider what will happen if this trend continues until the end of the decade.
In this scenario the UK population will stop growing at around 70 million in 2030. The latest official figures show that the UK population will be 69.3 million in 2024.
Dr Benjamin Caswell, a senior economist at NIESR, said: “Net zero migration leaves the economy 3.6% smaller in 2040 and this reflects slower job growth and a smaller workforce.”
The thinktank says that initially real wages and disposable income will rise as companies are forced to use more machinery and become more productive, with GDP per capita rising by 2% by 2040.
However, these gains come at the cost of weaker economic growth as a whole because a small and aging population leads to less tax revenue, which opens a gap between public spending and receipts and causes government borrowing.
“Think of it like freezing the population where it is, and then you have a continuously aging population,” Caswell said. “In the short to medium term, it won’t hurt too much, but it’s more than 20 years of gap [in spending and receipts] just keeps getting bigger and bigger.”
The thinktank said the government would fill this gap by borrowing, which would cause the budget deficit to rise to around 0.8% of GDP, or £37bn, by 2040.
This forecast is based on the assumption that government spending and tax payments until 2030 follow the path estimated by the Office for Budget Responsibility (OBR), the UK’s official forecaster, and then the share of government spending as a ratio of GDP remained constant thereafter.
The thinktank says that some payments, such as child benefit or jobseeker’s allowance, will adjust to follow these population changes, but that government investment and consumption will not change much.
Caswell said that unless the fertility rate picked up, then zero net migration “would not be fiscally sustainable for the UK unless there were significant tax increases, and significant tax increases could stifle economic growth”.
The forecast came after a sharp fall in net migration in 2025, from 649,000 to 204,000 in the year to June, following a tightening of work visa requirements by the Conservative government.
Further measures by the Labor government regarding the recruitment of foreign workers within health and social care could reduce migration, says NIESR. At the same time, the number of births and deaths in the UK has been more or less the same since the start of the decade, with any change in the UK population being driven by migration.