In a stark warning to policymakers, the National Institute of Economic and Social Research (NIESR) has outlined the potential economic fallout of adopting a net zero migration policy in the UK. Their latest report suggests that such a move could lead to significant tax increases or heightened borrowing to cover a projected £37 billion funding deficit, undermining the financial stability of the nation as it approaches the 2024 general election.
Economic Consequences of Zero Migration
NIESR’s analysis indicates that slashing net migration to zero would not only strain public finances but also hinder employment growth. The think tank warns that a shrinking workforce would ultimately decrease the country’s GDP growth. As the number of individuals entering and exiting the UK equalises, the repercussions would be felt across various sectors, with a significant contraction in the economy expected by 3.6 per cent by 2040. In contrast, maintaining positive net migration would likely broaden the tax base and mitigate debt-to-GDP ratios.
In recent months, net migration figures have seen a substantial decline, dropping to 204,000 in the year leading up to June—an alarming 69 per cent decrease year-on-year. This trend has prompted some analysts to speculate that the UK could reach net zero migration by the end of the decade, particularly in light of the government’s ongoing initiatives aimed at reducing legal migration.
Political Responses and Proposals
The political landscape surrounding migration is rapidly evolving. While the Labour Party has stopped short of introducing a strict cap on immigration, they have proposed measures to lengthen the period migrants must wait before applying for indefinite leave to remain. Conversely, the Conservative Party has advocated for a “binding, legal cap” on net migration levels, though specifics remain vague.
NIESR’s findings have cast doubt on these political strategies, suggesting that the proposed measures may not adequately address the potential economic downturn that could follow a drastic reduction in migration. Stephen Millard, NIESR’s deputy director for macroeconomics, cautioned that the UK lacks the institutional and financial frameworks to comfortably sustain a higher debt ratio, unlike Japan.
Future Economic Outlook
Beyond the immediate concerns surrounding migration, NIESR has revised its economic growth forecasts for the UK, predicting a slower trajectory for GDP growth in the coming years. The think tank now expects GDP to expand by just 1.4 per cent in 2025, down from a previous estimate of 1.5 per cent. This decline is expected to persist, with projections of 1.3 per cent growth in 2027 and 1.1 per cent in 2028, as rising taxes and reduced government spending weigh on economic performance.
The report also anticipates a peak unemployment rate of 5.5 per cent in the latter half of 2026, before gradually declining. Additionally, NIESR forecasts two cuts to interest rates this year, aiming to lower them to 3.25 per cent by the end of 2026 as inflation continues to recede.
Why it Matters
The implications of adopting a net zero migration policy extend far beyond mere numbers; they encapsulate the very fabric of the UK’s economic future. A potential £37 billion funding gap, coupled with reduced workforce participation, could destabilise public finances and lead to increased borrowing, laying the groundwork for a more precarious economic landscape. As the nation approaches a pivotal election, understanding the consequences of migration policies will be crucial for both political leaders and the electorate, shaping the UK’s economic resilience for years to come.
