What different migration profiles mean for the UK economy and public finances

In a recent note, we set out our new, much lower, baseline assumptions for net inward migration over the next five years. But we flagged there was significant uncertainty around the assumptions further out because of the uncertainty around immigration policy, which can vary considerably across different governments. We now set out two alternative scenarios for net inward migration to provide a range of plausible outcomes. These results demonstrate the importance of migration assumptions – running these profiles through our Global Economic Model, we find that by 2060, GDP is 5% above our baseline forecast in the upside scenario, but more than 15% below in our zero net migration variant.

A scenario where net inward migration is zero over the long term would result in government borrowing rising sharply. Lower tax revenue would more than offset the impact of a smaller population on spending.

If net inflows were lower, increasing participation in the labour force, particularly among older people, would be essential, with further increases in the state pension age possible. But the fiscal arithmetic of lower net inflows would force the government to confront tougher choices. Abandoning the triple lock on pensions would be imperative, but a broader rethink of government spending would likely be required.