Changes to Britain’s migration policy could cost the Treasury as much as £4bn by the 2029-30 tax year, according to the head of the Institute for Fiscal Studies, adding pressure to the government’s already limited fiscal room ahead of the Autumn Budget.
Helen Miller, director of the IFS, has called on the Office for Budget Responsibility to provide greater clarity over how changes in migration affect the public finances, particularly as net migration falls sharply from recent highs.
Recent estimates suggest net migration could fall below 150,000, compared with close to 1mn just a few years ago. Office for National Statistics projections indicate that net migration could settle at about 230,000 a year from 2027 onwards.
The shift follows an unprecedented rise in immigration after the pandemic. Between the period immediately before Covid-19 and 2023, annual immigration increased from about 800,000 to more than 1.4mn, according to ONS data. Net migration subsequently reached a record of almost 872,000 in 2022.
Miller warned that a reduction in migration could have a significant fiscal effect because migrants contribute through taxes as well as using public services.
“The effect of migration on the public finances is complicated. It depends not just on how many people arrive, but on what they do when here and how long they stay.”
The OBR estimated in March 2024 that 200,000 fewer arrivals each year would result in roughly £20bn of additional annual borrowing within five years.
That calculation was based on an assumption that net migration would average about 235,000 a year through to 2030. But the latest figures suggest the decline has been faster than anticipated, with ONS recording net migration of 171,000 in the year to December 2025, down from 331,000 previously.
The potential fiscal consequences come at an awkward time for Chancellor John Healey, whose room for manoeuvre has already been constrained by higher government borrowing costs.
Rising gilt yields have eroded much of the government’s estimated £23.6bn fiscal headroom, leaving ministers with less flexibility before the Budget on October 28.
Miller is calling for the OBR to incorporate the fiscal effects of migration policy more explicitly into its forecasts, arguing that the economic consequences should be assessed alongside the political objectives of reducing immigration.
“Shining the fiscal watchdog’s light on the impact of migration policies would help outsiders better scrutinise Government choices. And that scrutiny will continue to be important as debates about migration rumble on.”
The issue presents a difficult trade-off for the government. Lower migration may help ministers meet political commitments to reduce immigration, but a smaller working-age population can also reduce tax receipts and increase borrowing requirements if the fiscal contribution of migrants exceeds the cost of the services they use.
For Healey, the question is particularly pressing ahead of the Budget, as the government attempts to balance migration policy with borrowing constraints and an increasingly expensive sovereign debt market.
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