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."

Net zero migration would reduce UK GDP by 3.6% by 2040 through slower employment growth and a smaller workforce. Population growth would stall around 70 million by 2030 from 69.3 million in 2024. Short-term effects include higher real wages and disposable incomes as firms adopt more machinery, lifting GDP per capita by about 2% by 2040. Long-term effects include weaker overall growth, fewer tax receipts from an ageing population, and a wider gap between public spending and revenues. The government would borrow to fill the gap, raising the deficit by about 0.8% of GDP (approximately £37bn) by 2040, assuming OBR paths to 2030 and constant spending ratios thereafter.

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