UK migration plunge threatens to blow £20 billion hole in Rachel Reeves’ budget plans
The UK’s sharp decline in net migration is poised to create a significant fiscal challenge for Chancellor Rachel Reeves, potentially adding up to £20 billion annually to public borrowing if the trend persists below official forecasts, according to analysis from the Institute for Fiscal Studies (IFS).
In a pre-Spring Forecast briefing published February 25, 2026, the IFS highlighted net migration as one of the biggest medium-term risks to the government’s public finances.
The Office for Budget Responsibility (OBR) in its November 2025 outlook projected net migration falling from a 2023 peak of around 900,000 to 290,000 in 2025, 260,000 in 2026-2027, and eventually stabilising near 340,000 by 2030.
But recent provisional data from the Office for National Statistics (ONS) shows net migration at just 204,000 for 2025, well below the OBR’s expectations. Some independent forecasts, including from economists like James Bowes at the University of Warwick, even suggest it could turn negative in 2026 amid tighter visa rules introduced under the Labour government.
The IFS referenced OBR modeling from March 2024, which estimated that an additional 200,000 net migrants per year (totaling 1 million over five years) would reduce central government borrowing by around £20 billion annually, equivalent to about 0.6% of GDP.
This benefit stems from migrants typically being of working age, contributing more in taxes and visa fees/NHS surcharges while using fewer public services initially and facing restrictions on benefits.
Conversely, a sustained reduction of 200,000 net migrants per year would push borrowing higher by a similar magnitude, the IFS noted.
Migration brings money
The think tank cautioned that these figures are illustrative and uncertain. If the OBR were to adjust for population-driven increases in public service spending (e.g., maintaining per-person budgets), the net fiscal benefit of higher migration could shrink by about a third. Still, a persistent undershoot in migration would hit GDP growth, labour supply, and tax revenues, key drivers of the Chancellor’s fiscal plans.
Reeves built a buffer in her November 2025 Budget to meet self-imposed fiscal rules, including balancing the current budget and reducing debt as a share of GDP by 2029-30. The rules are assessed annually in the autumn, limiting major fiscal events to once a year.
The upcoming Spring Forecast on 3 March, is expected to be comparatively low-key, no new policy announcements unless major economic deterioration occurs, and will not include a full reassessment of fiscal rules.
Without fresh ONS medium-term projections, the OBR is unlikely to make dramatic changes to its migration assumptions in the short term.
However, the IFS expects the OBR to flag sensitivities around migration, potentially signaling risks that could require action in the Autumn Budget. A sharper-than-expected plunge could force difficult choices including higher taxes, deeper spending cuts, or relaxed borrowing targets.
For Reeves, who has prioritized fiscal stability to showcase the UK as a reliable economy, the migration slowdown adds to pressures from subdued tax receipts and other variables.
The Chancellor has so far avoided major interventions, but the IFS notes how reliant the public finances have become on inflows that policy is now actively curbing.
