Zero Net Migration May Shrink UK Economy and Force Tax Hikes
London, Wednesday, 4 February 2026.
New analysis projects halting migration would contract the UK economy by 3.6% by 2040, creating a £37 billion deficit that likely leaves the government no choice but raising taxes.
A Fiscal Black Hole
The National Institute of Economic and Social Research (NIESR) explicitly outlines the fiscal fragility of a zero net migration scenario. According to the institute’s projections released today, February 4, 2026, the resulting economic contraction would inflate the budget deficit by 0.8% of GDP by 2040 [1][5]. In nominal terms, this equates to a £37 billion gap between public spending and tax receipts [1][2]. To contextualize the severity of this shortfall, the projected deficit significantly exceeds the tax hikes implemented in the recent November 2025 Budget, which raised annual taxes by approximately £26 billion [5]. Dr. Benjamin Caswell, a senior economist at NIESR, warns that without a recovery in fertility rates, maintaining zero net migration would be fiscally unsustainable without significant tax increases that could subsequently “choke off economic growth” [1].
The Demographic Ceiling
The core driver of this economic contraction is a stagnating workforce. The UK population, recorded at 69.3 million in 2024, is currently sustaining its numbers solely through migration, as birth and death rates have effectively equalized since the start of the decade [1]. Under a zero net migration policy, NIESR forecasts that the population would cease growing entirely, plateauing at approximately 70 million by 2030 [1][4]. This demographic freeze creates a structural imbalance; while the total population stabilizes, the ratio of working-age adults to retirees shrinks, depressing tax revenues while demands on state services persist [3][4]. Caswell describes this dynamic as “freezing the population where it is, and then just having a continually ageing population,” a shift that progressively widens the fiscal deficit over a 20-year horizon [1].
The Productivity Paradox
Interestingly, the report highlights a paradoxical outcome where individual living standards might appear to improve even as the national economy withers. NIESR projects that in a labor-scarce environment, businesses would be compelled to invest heavily in machinery and automation to maintain output [1][4]. Consequently, real wages and GDP per capita are forecast to rise by 2% by 2040 [1][4]. However, these efficiency gains are insufficient to offset the broader macroeconomic damage. The aggregate economy would still be 3.6% smaller than baseline projections, confirming that while individual workers might become more productive, the collective tax base would be too small to support the nation’s public finance obligations without increased borrowing [2][3].
Migration Trends in Freefall
This analysis arrives as the UK witnesses a dramatic shift in its migration landscape. Following stricter work visa requirements implemented by the previous Conservative government, net migration plummeted from 649,000 to 204,000 in the year ending June 2025 [1][4]. This represents a steep decline of -68.567 percent year-on-year [3]. NIESR notes that additional recruitment measures in health and social care by the current Labour government could depress these numbers further [1]. Against this backdrop of tightening labor flows, the institute has adjusted its broader economic outlook, forecasting UK GDP growth of just 1.4% for 2026, with unemployment expected to peak at 5.4% in the second half of the year [5].