Migration change in Britain could cost Treasury up to £4billion more in borrowing costs, economist warns

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IFS director Helen Miller is calling on the UK's fiscal watchdog to provide more clarity on how falling migration figures will impact the country's tax revenues

Changes to migration policy in Britain will cost the Treasury up to £4billion by the 2029-30 tax year, the director of a leading think tank has warned.

Helen Miller, who leads the Institute of Fiscal Studies (IFS), is calling on the Office for Budget Responsibility (OBR) to provide clarity on how migration affects the UK economy.

Recent data suggests that net migration is projected to fall below 150,000, which is significantly lower than figures of around one million a couple of years ago.

Based on Office for National Statistics (ONS) forecasts, net migration is likely to settle at around 230,000 a year from 2027 and beyond.

Between just before the Covid-19 pandemic and 2023, immigration to Britain skyrocketed from around 800,000 a year to more than 1.4 million people, ONS data shows.

Net migration, which is the figure highlighting the difference between emigration and immigration, hit a high of nearly 872,000 in 2022.

Ahead of another likely drop in net migration, Ms Miller is urging the UK's fiscal watchdog to factor in the likely impact of a drop in tax revenues as a result of lower migration levels.

Writing in The Financial Times, she said: "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.

"How the Government adjusts its spending plans as the population changes also matters.

"Nevertheless, a plausible downward revision to expected net migration in the OBR’s forecast could push up borrowing by around £1billion to £4billion in 2029-30, the year in which the Government’s performance against the fiscal rules is assessed.

"This is because lower immigration would reduce tax revenues."

As it stands, the OBR counts the tax and visa fees migrants pay, assumes they cost little in benefits, and treats department budgets as fixed; so fewer migrants means less revenue and more borrowing in its forecasts.

In March 2024, the OBR claimed that 200,000 fewer arrivals a year would result in roughly £20billion of extra annual borrowing within five years.

However, this projection assumed average net migration of 235,000 a year to 2030, but the ONS has since recorded 171,000 in the year to December 2025, down from 331,000.

With higher gilt yields already eating into the £23.6billion of headroom, Chancellor John Healey has little left to give ahead of his Budget statement on October 28.

Ms Miller added: "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."