Rachel Reeves could be forced to launch another tax raid ahead of a looming “new challenge” to the nation’s finances.
Experts have warned that the Chancellor will be compelled to address a potential multi-billion-pound budget shortfall.
Projections indicate that net migration could plummet to zero or even turn negative before the year concludes, which would severely reduce Treasury tax receipts.
Migration specialists broadly concur that actual figures will fall considerably short of the Office for Budget Responsibility’s November forecast, potentially forcing the fiscal watchdog to revise its projections downward.
The current net migration figure stands at 204,000 for the 12 months ending June 2025, representing a substantial fall from the record high of 944,000 recorded in the year to March 2023.
The OBR had anticipated 262,000 for this year, but analysts believe this estimate is now significantly overstated.
Charlie McCurdy, an economist at the Labour-linked Resolution Foundation think tank, warned that more people leaving the country than arriving could be ruinous for Britain’s coffers.
He said: “If predictions that net migration to the UK turns negative by next Christmas with more people leaving the country than arriving there would be serious consequences for the public finances.
Rachel Reeves could be forced to launch a new tax raid
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“The OBR has previously estimated that a sustained 200,000 reduction in net migration could chip as much as £20billion off the government’s budget by the end of the decade even more costly to the Exchequer than cutting 2p from the basic rate of income tax.
“If an unexpectedly sharp drop in migration does materialise, it would solve one political challenge for the government but create a new economic one.”
Stephen Millard, deputy director of the National Institute of Economic and Social Research, argued: “If you don’t have the migrants, you have fewer people working so your tax revenue goes down.
“Simply speaking, if that number goes down, that’s a hit to the public finances. The drop in tax revenue would be seen straight away.
“If over the course of the year, up to September or October, tax revenues were coming in much lower than expected, then we’d have to see a rise in taxes again in the next budget.”
Net immigration to the UK is set to fall, prompting a ‘new challenge’ for the public finances
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Three principal factors are driving this anticipated decline in migration numbers.
Firstly, stricter visa regulations implemented by the previous government have substantially reduced arrivals, with health and social care visas falling by half last year and skilled worker visas decreasing by a third.
Secondly, Home Secretary Shabana Mahmood’s changes to indefinite leave to remain rules, extending the qualifying period to 15 years for work visa holders, are expected to prompt significant departures.
James Bowes, a data analyst at the University of Warwick, estimates that 70,000 people will leave Britain as a result of this change.
He said: “Realistically, people can’t just commit to 15 years safe in the knowledge that they’ll get ILR at the end of it.
“A precedent has already been set that rules can arbitrarily be changed when people are already here, which has broken the trust in the system.”
Thirdly, hundreds of thousands of graduate visas granted approximately two years ago are now expiring.
Mr Bowes calculated that the combined effect of these three factors could push net migration to negative 62,000 by year’s end.
Madeleine Sumption, director of the Migration Observatory at the University of Oxford, said: “I would say net zero migration is perhaps a 10 per cent probability, not impossible but relatively unlikely.
‘If you don’t have the migrants, you have fewer people working so your tax revenue goes down,’ one expert warned
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“Somewhere between 100,000 and 200,000 in the short run, by the end of this year, seems most likely.
“If net migration does go down to zero, it will be temporary. We are not entering an era of long-term super-low net migration to the UK.”
Government sources acknowledged the OBR had yet to incorporate some major migration policy changes, per The Times.
However, a spokesman for the Government maintained that the UK “remains a highly attractive place to live and invest”.