Net zero migration would require major tax rises to plug £37bn black hole, experts warn
Reducing net migration to zero would contract the economy and require a series of tax rises or increased borrowing to plug a £37bn funding gap, a leading economic think tank has warned; This will be a major blow to Reform UK’s immigration plans.
The National Institute for Economic and Social Research (NIESR) said in its latest economic outlook report that such a scenario would “put pressure on the public finances” and that “any net zero immigration scenario would not be fiscally sustainable for the UK unless there are significant tax increases”.
Ahead of the 2024 general election, Nigel Farage announced that net migration to the UK should be zero, meaning the number of people leaving Britain would equal those arriving.
Meanwhile, following a series of government measures to restrict legal immigration, the latest official figures showed net migration fell by 69 per cent year-on-year to 204,000 by June, raising the prospect of Britain reaching net zero before the end of the decade, according to some forecasters.
Labor has ruled out imposing a hard cap on the number of people coming to Britain, but has announced a series of measures to reduce legal immigration, including increasing the time immigrants must wait before applying for indefinite leave to remain.
The Conservatives have proposed a “binding, legal limit” on net migration but have not specified at what level this limit should be set.
NIESR, a research institute independent of party-political interests, said net-zero immigration would slow employment growth and lead to a reduction in the proportion of people of working age, resulting in lower tax revenues.
This would eliminate the need for the government to raise taxes to close the growing financing gap in the long run.
According to the analysis, reduced tax revenues could also be offset by higher borrowing; This would increase the budget deficit by around 0.8 per cent of gross domestic product (GDP) by 2040, equivalent to around £37bn in today’s prices.
But if net migration remains positive, increasing the working-age population will broaden the tax base and help stabilize the debt-to-GDP ratio, NIESR said.
While the think tank predicted per capita GDP growth would be higher under a net-zero immigration scenario, overall GDP growth would be lower due to slower employment growth and a smaller workforce.
NIESR predicts that cumulatively net zero immigration would shrink the economy by 3.6 per cent by 2040, which would be equivalent to reducing the UK’s trend GDP growth rate by around 0.2 percentage points.
Stephen Millard, NIESR deputy director for macroeconomics, said: “Our analysis clearly shows that net zero immigration will put pressure on public finances and worsen the public debt outlook.
“Unlike Japan, the UK lacks the institutional and financial conditions to support a significantly higher debt ratio.
“We therefore recommend that the government make a concerted effort to reduce public debt so that it has room to respond to a sharp decline in immigration or any negative shock to the UK economy.”
Elsewhere in its latest report, NIESR lowered its outlook for UK economic growth in 2025.
It now expects GDP to be 1.4 percent this year, below the 1.5 percent forecast in November.
The think tank predicts that the economy will slow to 1.3 percent in 2027 and 1.1 percent in 2028 as taxes rise and government spending growth declines.
It is also predicted that the unemployment rate will peak at 5.5 percent in the second half of 2026 and then gradually decrease.
Meanwhile, NIESR said it foresees two reductions in interest rates this year and predicts that interest rates will be reduced to 3.25 percent by the end of 2026 as inflation declines.
Reform UK has been contacted for comment.
