Zero net migration would shrink UK economy by 3.6%, says thinktank

The UK economy would be 3.6% smaller by 2040 if net migration fell to zero, forcing the government to raise taxes to combat a much bigger budget deficit, a thinktank has predicted.The National Institute of Economic and Social Research (NIESR) said falling birthrates in the UK and a sharp decrease in net migration last year had led it to consider what would happen if this trend continued to the end of the decade.In this scenario the UK population would stop growing at about 70 million in 2030. The latest official figures showed the UK population was 69.3 million in 2024.Dr Benjamin Caswell, a senior economist at NIESR, said: “Net zero migration leaves the economy 3.6% smaller by 2040 and this reflects slower employment growth and a smaller workforce.”The thinktank said that initially real wages and disposable income would rise as firms would be forced to use more machinery and become more productive, with GDP per capita rising by 2% by 2040.However, these gains would come at the cost of weaker growth in the economy overall as a smaller and ageing population would lead to fewer tax revenues, opening up the gap between public spending and receipts and causing the government to borrow more.“Imagine it as like freezing the population where it is, and then just having a continually ageing population,” Caswell said. “In the short to medium term, it’s not too detrimental, but over 20 years this gap [in spending and receipts] becomes continually larger and larger.”The thinktank said the government would fill this gap by borrowing, which would cause the budget deficit to increase by about 0.8% of GDP, or £37bn, by 2040.This forecast is based on the assumption that government spending and tax rates up to 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 remains constant thereafter.The thinktank said that certain payments, such as child benefit or jobseeker’s allowance, would adjust following these changes in the population, but that government investment and consumption would not alter greatly.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 rises, and significant tax rises could potentially choke off 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, after a tightening of work visa requirements by the Conservative government.Additional measures by the Labour government around recruiting foreign workers within health and social care may bring down migration further, NIESR said. At the same time, the number of births and deaths in the UK have been more or less equal since the start of the decade, with any change in the UK population being driven by migration.