UK Economy: 3.6% Smaller by 2040 Without Net Migration, Warns Thinktank

UK Economy Faces Headwinds: What Happens if Migration Falls to Zero?

The UK economy could shrink by 3.6% by 2040 if net migration were to fall to zero, according to a recent prediction from the National Institute of Economic and Social Research (NIESR). This potential downturn would likely necessitate significant tax increases to address a growing budget deficit.

The Demographic Shift and Economic Impact

NIESR’s analysis stems from a combination of factors: declining birthrates within the UK and a substantial decrease in net migration observed in 2025. Net migration fell from 649,000 to 204,000 in the year ending June 2025, following stricter work visa requirements implemented by the Conservative government. Further reductions are anticipated due to potential measures by the current Labour government regarding recruitment of foreign workers in health and social care.

Dr. Benjamin Caswell, a senior economist at NIESR, explains that zero net migration would lead to slower employment growth and a smaller workforce. While initial real wages and disposable income might see a 2% rise by 2040 due to increased firm productivity and automation, this gain would be offset by weaker overall economic growth.

The Fiscal Implications: A £37 Billion Gap

A smaller and aging population translates to reduced tax revenues, widening the gap between public spending and income. NIESR estimates this gap could reach approximately £37 billion by 2040 – equivalent to 0.8% of GDP. The thinktank anticipates the government would likely address this shortfall through increased borrowing.

The forecast assumes government spending and tax rates will follow the Office for Budget Responsibility’s (OBR) estimates up to 2030, with the ratio of government spending to GDP remaining constant thereafter. Certain payments, like child benefit and jobseeker’s allowance, would adjust to population changes, but overall government investment and consumption are not expected to change dramatically.

Tax Hikes or Stagnation?

NIESR warns that without a rise in the fertility rate, maintaining fiscal sustainability with zero net migration would require “significant tax rises.” These substantial tax increases, however, could potentially hinder economic growth.

The situation can be visualized as essentially “freezing the population” and allowing the existing population to age. While the short-to-medium term effects may not be severely detrimental, the widening gap in spending and receipts will become increasingly problematic over the next two decades.

The UK’s Constitutional Structure and Regional Variations

The United Kingdom is a constitutional monarchy and parliamentary democracy comprised of England and Wales, Scotland, and Northern Ireland. Scotland, Wales, and Northern Ireland each possess their own governments and parliaments with devolved powers. The economic impact of migration changes may vary across these regions.

Frequently Asked Questions

Explore further: Read the full NIESR report here and the latest economic outlook from the OBR here.

What are your thoughts on the future of migration and its impact on the UK economy? Share your comments below!