The sharp and unexpected drop in Britain’s net migration figures is set to blow a multi-billion pound hole in the government’s fiscal plans, economists have warned Chancellor Rachel Reeves, adding fresh pressure to her upcoming spring statement.
New analysis from the Resolution Foundation think tank shows that the recent dramatic fall in long-term arrivals will add around £3 billion to public borrowing. James Smith, the foundation’s chief economist, told a London event previewing the Chancellor’s March statement that official statistics now point to a “much sharper fall in net migration than the OBR had built into their forecast,” directly impacting the Treasury’s tax take.
A Stunning Reversal
Office for National Statistics data revealed that estimated net migration for the year to June 2024 was 204,000—the lowest annual figure since 2021 and a staggering two-thirds drop from the 649,000 recorded a year earlier. This represents a stunning reversal from the record peak of 944,000 seen in the calendar year 2023, a number that triggered successive government crackdowns.
The plunge has been driven by a significant fall in the number of people arriving for work and study, following a series of restrictive policy changes. Ministers have raised salary thresholds for skilled worker visas, restricted the ability of international students to bring family members, and tightened health and care visa routes. The success of these measures in curbing numbers has, however, created a fresh economic headache.
The Fiscal Fallout
Lower migration, particularly of people of working age, reduces the government’s tax revenue without a corresponding fall in demand for public services. The independent Office for Budget Responsibility (OBR) had based its economic and borrowing forecasts on higher projected levels of net migration than are now materialising, creating a significant forecasting error.
The Resolution Foundation estimates that a combination of lower growth, higher wages and unemployment, alongside falling net migration, will increase UK borrowing by £6 billion by the end of the decade. This will be partially offset by lower-than-expected interest rates on government debt, leaving borrowing roughly £1 billion higher than forecast at the last Budget.
The warning underscores a deeper, long-term demographic challenge. With an aging population, low productivity growth, and a historically high number of working-age people economically inactive, migration has been a key driver of UK population and potential economic growth in recent years.
A Call for Policy Clarity
The migration-driven fiscal pressure comes alongside broader warnings over the UK’s economic direction. Karen Ward, managing director at JPMorgan Asset Management, cautioned that the economy “cannot afford another year of speculation about potential tax rises.” She warned that continued uncertainty would lead to “another year of economically debilitating paralysis,” stifling business investment and planning.
These stark assessments arrive despite a recent surprise drop in inflation and just days before the Chancellor’s spring statement, which will set out the OBR’s latest forecasts. They also highlight the difficult backdrop against which Labour is governing, having failed to achieve the growth promised upon entering Downing Street.
Recent economic data has shown the economy nearly stalling at the end of last year, growing by a meagre 0.1 per cent in the final quarter, while the unemployment rate has hit a five-year high. The confluence of weak growth, rising joblessness, and a rapidly shrinking migration-driven tax base presents Chancellor Reeves with a complex set of interlocking challenges as she finalises her statement.
