Mass exodus of migrants could cost UK billions and force tax rises, experts warn

LONDON Jan 11: Chancellor Rachel Reeves may be pushed into raising taxes to plug a multi-billion-pound hole in the public finances as immigration to the UK sharply declines, according to economists and migration specialists.

Forecasts suggest net migration could fall to zero — or even turn negative — by the end of the year, meaning more people would leave the UK than arrive. Such a shift would significantly reduce tax receipts flowing to the Treasury.

Experts believe migration levels are now likely to be far below the Office for Budget Responsibility’s (OBR) November forecast, raising the prospect that the watchdog will be forced to downgrade its projections.

Charlie McCurdy, an economist at the Labour-aligned Resolution Foundation, warned that a sudden reversal in migration would have serious fiscal consequences.

“If predictions that net migration turns negative by next Christmas prove correct, with more people leaving than arriving, the impact on the public finances would be severe,” he said.

“The OBR has previously estimated that a sustained fall of 200,000 in net migration could reduce government revenues by as much as £20 billion by the end of the decade — a bigger hit than cutting 2p from the basic rate of income tax.

“An abrupt collapse in migration would ease political pressure on the government but create a major economic problem.”

Net migration stood at 204,000 in the year to June 2025, down sharply from a record high of 944,000 in the year to March 2023. In November, the OBR predicted net migration of 262,000 this year, though analysts now believe the final figure will be much lower.

The decline has been driven partly by tighter visa rules introduced by the previous government. Health and social care visas halved last year, while skilled worker visas fell by around a third.

Rising emigration is also expected to play a significant role. One key factor is the tougher rules on indefinite leave to remain (ILR) announced by home secretary Shabana Mahmood, which extend the qualifying period for work visa holders to 15 years.

The OBR said in November that it lacked “sufficient detail” to model the impact of the ILR changes. However, James Bowes, a data analyst at the University of Warwick, estimates that around 70,000 people could leave the UK as a result.

“Realistically, people can’t commit to 15 years without certainty that ILR will still be available at the end,” Bowes said. “The fact that rules can be changed while people are already here has damaged trust in the system.” He added that the rise of Reform UK, which has pledged to scrap ILR altogether, could heighten these concerns.

A third factor is the expiry of graduate visas for hundreds of thousands of people who arrived roughly two years ago.

Madeleine Sumption, director of the Migration Observatory at the University of Oxford, said this pattern is typical. “Many migrants always plan to leave, and often do so within two or three years. When you have a surge in arrivals, you usually see a corresponding surge in departures a few years later,” she said.

Bowes estimates that the combined impact of tighter work visas, stricter ILR rules and expiring graduate visas could push net migration to minus 62,000 by the end of the year.

Sumption cautioned that migration behaviour is difficult to predict, but said net zero migration was not impossible. “I’d put it at about a 10 per cent probability — unlikely, but not out of the question. A figure between 100,000 and 200,000 by the end of the year seems more plausible.”

She added that any collapse would probably be temporary. “If net migration does hit zero, it won’t last. We are not entering an era of permanently ultra-low migration.”

Even a short-term dip, however, could influence Reeves’s decisions in the next budget, particularly if the OBR revises its forecasts.

Stephen Millard, deputy director of the National Institute of Economic and Social Research, said the impact on tax revenues would be immediate.

“If you have fewer migrants, you have fewer people in work, and that means lower tax receipts,” he said. “If revenues come in well below expectations by autumn, that would increase the likelihood of tax rises in the next budget.”

Government sources stressed that migration forecasts remain highly uncertain but acknowledged that the OBR has yet to factor in several major policy changes. A spokesperson said the UK “remains a highly attractive place to live and invest.”