Reducing net migration to zero would slow the UK economy and make it worse, says the think tank

Cutting net migration to zero would bring a short-term boost to living standards but ultimately prove “fiscally unsustainable”, leaving the UK economy smaller, public finances weakened and deficits permanently higher, according to new analysis.

This warning comes from the National Institute of Economic and Social Research (NIESR), which said that a zero net migration policy would shrink the economy by 3.6 percent by 2040 and reduce the number of workers by about 2.5 million people compared to current forecasts. The result, he says, could be a £37bn hit to the public purse unless higher taxes are cut or public spending is cut.

The findings come amid new evidence that net migration has already fallen sharply. Initial estimates suggest total migration could drop to 200,000 by 2025, the lowest level since 2012, excluding the pandemic, following tougher visa rules for students and workers introduced by the previous Conservative government and other restrictions on overseas care workers under Labour.

That fall has fueled speculation among statisticians that net migration could reach zero in coming years. This would mark a dramatic reversal after the total number of migrations rose to more than 900,000 in 2023, the highest level on record, as 2022 and 2024 also saw historically high inflows.

NIESR said that in the event that net migration drops to zero, per capita income will rise by about 2 percent in the long term, as fewer workers will mean greater availability of capital and equipment, increasing per capita productivity. However, those gains would not be sustainable without financial intervention.

“A zero net migration scenario is not fiscally sustainable,” the center said, arguing that weak growth would ultimately force governments to raise taxes or cut spending to stabilize debt. Conversely, it said positive net migration provides a “more direct route to fiscal sustainability” by supporting growth and the tax base.

Under the agency’s modelling, the UK population would stabilize at around 70 million in 2030 if migration were to end, compared to rising to around 74 million in 2040 under the Office for National Statistics’ projections.

Along with its migration analysis, NIESR has revised its broad economic outlook. Inflation is expected to fall below the Bank of England’s 2 percent target in April and remain close to that level throughout the year. As a result, it predicts two interest rate cuts in 2026, bringing the rate down to 3.25 percent from 3.75 percent, although markets expect rates to be left unchanged at this week’s MPC meeting.

Economic growth is forecast at 1.4 percent this year, slightly below the 1.5 percent projected in November, before slowing to 1.3 percent in 2027 and 1.1 percent in 2028. NIESR said part of that assessment shows the impact of the tax hikes announced by Rachel Reeves in the medium term, which we expect to reach in the medium term.

The bottom line for this institution is clear: while cutting immigration may be politically attractive and provide a temporary boost to incomes, ending immigration altogether will come at a huge economic and financial cost that the UK cannot afford without hard trade-offs.