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The National Institute of Economic and Social Research (NIESR) has issued a stark warning that the UK’s economy could contract by 3.6% by 2040 if net migration were to cease entirely. This alarming forecast suggests that the government would be forced to raise taxes significantly to address a burgeoning budget deficit. The report highlights the implications of stagnating population growth, driven by declining birth rates and a sharp decrease in migration, which could have far-reaching consequences for public finances and economic stability.
Population Projections and Economic Impact
The NIESR’s analysis points to a critical inflection point for the UK, suggesting that the population could plateau around 70 million by 2030—a modest increase from the current figure of 69.3 million recorded in 2024. This stagnation is largely attributed to a significant drop in net migration, which plummeted from 649,000 in 2025 to just 204,000 by June of the following year, following stricter work visa regulations imposed by the Conservative government.
Dr Benjamin Caswell, a senior economist at NIESR, elaborated on the findings: “If we freeze the population where it is, we will face a continually ageing demographic. In the short to medium term, this will not seem too detrimental, but over the next two decades, the gap between public spending and tax receipts will widen significantly.”
Fiscal Consequences and Government Borrowing
As the population ages and the workforce shrinks, the report predicts that the government will experience a marked decline in tax revenues, leading to an increase in borrowing. NIESR estimates that the budget deficit could swell by approximately 0.8% of GDP, translating to an additional £37 billion by 2040. The thinktank anticipates that while initial increases in productivity might be observed as businesses invest in machinery and technology due to a smaller workforce, the long-term effects could be detrimental.
In this scenario, real wages and disposable income might rise temporarily, with GDP per capita expected to increase by 2% by 2040. However, this positive outlook would be overshadowed by the overall economic contraction and the increasing financial strain on public services.
Implications for Public Policy
The report underscores the urgent need for the government to reconsider its immigration policies, particularly in light of the significant drop in migration levels that could further exacerbate the fiscal challenges faced by the nation. NIESR warns that unless there is a marked increase in the fertility rate, maintaining zero net migration may not be financially sustainable for the UK. Dr Caswell cautioned that substantial tax increases could stifle economic growth, posing an additional challenge for policymakers.
Recent measures introduced by the Labour government aimed at bolstering recruitment of foreign workers in health and social care could yield some relief, but experts caution that these steps may not be sufficient to counterbalance the demographic trends at play.
Why it Matters
The potential contraction of the UK economy by 3.6% due to stagnant population growth and zero net migration raises critical questions about the sustainability of public finances and the viability of current economic policies. As the government grapples with the implications of an ageing population and declining tax revenues, the findings from NIESR serve as a clarion call for immediate action. Rethinking immigration strategies and fostering a more robust workforce are essential to ensure long-term economic vitality and maintain the quality of public services that citizens rely on.
