Economists have raised concerns that the current government’s policy to further reduce net migration could have significant implications for public finances. The warning comes as declining migration numbers threaten tax revenues, potentially requiring the Chancellor,
Rachel Reeves, to consider additional tax rises or spending cuts. These challenges are emerging ahead of the upcoming spring statement, where the Treasury will update Parliament on the UK’s economic outlook and fiscal projections.
Economists caution on falling migration
Leading economic analysts, including the Institute for Fiscal Studies (IFS), have highlighted the risk that a sharper-than-expected decline in net migration may pose to the nation’s economic growth and Treasury receipts.
The IFS stated that if net migration continues to fall or remains significantly below official forecasts, it could “materially hit economic growth and overall tax revenues”.
Nick Ridpath, a research economist at the IFS, commented that if current trends persist, Chancellor Reeves’s fiscal rules could face renewed scrutiny by the autumn budget.
Potential risks to public finances
Low migration often means fewer people in work contributing to income tax and National Insurance. According to IFS analysis, new immigrants are generally of working age and, in most cases, do not claim benefits in their initial years after arriving in the UK.
This demographic profile tends to result in a net positive effect on the public finances. However, a considerable fall in net migration now poses a “potential to put a dent in the forecast for tax revenues”, the IFS cautioned.
This could create a shortfall, forcing the Treasury to consider further tax increases or cuts to public spending to balance the books.
Government’s recent tax measures
Chancellor Rachel Reeves has already introduced substantial tax increases. The 2024 Budget included a tax rise of £40 billion aimed at supporting public services and fostering economic growth.
Subsequently, an additional £26 billion in tax hikes was announced in the autumn budget. These policy actions were designed to stabilise the UK’s finances, but changing migration patterns could challenge the original assumptions underlying these measures.
Trends in UK migration figures
The number of people migrating to the UK rose sharply in 2023, with the Office for National Statistics reporting net migration at around 900,000 for the year.
In response, successive governments, including the current administration, tightened migration rules, particularly relating to work and study visas. Recent data suggest the crackdown has led to a notable reduction: provisional figures for 2025 show net migration at 204,000, well below the Office for Budget Responsibility (OBR) forecast of 290,000. The OBR had previously suggested net migration would stabilise around 260,000 for 2026 and 2027, rising back to around 340,000 by 2030.
Fiscal rules and economic context
The Chancellor’s self-imposed fiscal rules prevent new borrowing for day-to-day spending and require public debt to fall as a share of gross domestic product (GDP) by the end of the decade.
Adhering to these limits may prove increasingly difficult if tax receipts underperform due to the lower-than-expected migration levels. Last week, the IFS recommended scrapping these borrowing and debt targets, describing them as contributing to “dysfunctional” policymaking and uncertainty in economic management.
Final Summary
In summary, the prospect of continued falls in net migration presents a complex challenge for the UK government’s economic strategy. Lower levels of migration are likely to reduce the workforce and consequently impact tax revenues, putting pressure on the Chancellor’s plans to maintain fiscal stability.
Whether through tax increases, spending adjustments, or changes to fiscal rules, significant policy decisions may be required in the coming months. Those wishing to monitor UK economic developments and implications for personal finances can find timely updates and tools through the Pie app.
