The fall in immigration is mutilating Healey’s Budget

Next week, the Budget will reveal a fundamental economic reality and then everyone will pretend it isn’t happening. Chancellor John Healey will probably try to avoid admitting it, but it’ll likely be there in black and white in the supporting documents from the Office for Budget Responsibility (OBR).

The reality is this: Immigration is falling. This fall is making us poorer. And that makes Healey’s life much more difficult.

Obviously no-one ever talks about immigration this way. If Kemi Badenoch had gone on TV this week and said that she wanted to provide a free breakfast for all schoolchildren, she would instantly have been asked where the money was coming from. Had she costed it? Would the funding come from increased taxes? Reduced spending? More borrowing?

But she didn’t do that. Instead she went on TV and demanded less immigration, so no-one bothered to ask where she’d find the money to pay for it. The Tory leader gave a speech in which she claimed that any watering down of proposals to extend the indefinite-leave-to-remain period would be met by rioting similar to that which we see in France.

It was an absurd response to a completely unrelated situation, but she has an absurd brain composed of unrelated neurons, so it wasn’t exactly a surprising development. Afterwards, BBC political editor Chris Mason asked: “Do you fear that the UK might be on the brink of rioting because of people’s concerns about immigration?”

Great work, Chris, as ever. No funding questions there. No inquiries as to whether she had costed her policy. In Mason’s rather generic BBC mind, the whole notion that you might ask an economic question in response to a point about immigration would seem exotic and probably absurd, like trying to use a banana to charge your phone.

This is how it’ll play out next week, after Healey delivers the Budget. The BBC reports are unlikely to feature any details about how a reduction in immigration has limited his headroom. And nor, of course, will the right-wing newspapers like the Telegraph, the Times and the Mail, who base nearly their whole editorial agenda on incendiary claims about immigration. And nor will the Labour party or Lib Dems, because they feel they need to submit to the assumed views of voters.

But it will nevertheless remain the truth. And it will not stop being true just because no-one wants to admit it.

Subscribe now

The basic background reality to the immigration debate is that British people aren’t having enough kids.

This year will be historic. Barring a sudden change in the data, this will be the first year in which more people in the UK will die than are born. We are entering a new demographic age.

Since the start of the 20th Century, UK birth exceeded deaths almost every year outside of covid. But recently people have been having fewer children. There were around 810,000 births in 2011. By last year, that had fallen to 660,000. The gap between births and deaths had dwindled to just 2,000. This year it is expected to finally close.

We’ve known this was coming for some time. In England and Wales, fertility has dropped to 1.41 births per woman. That’s well below the replacement rate of 2.1.

The same phenomenon is happening in many countries around the world and in a particularly heightened way in wealthy countries. Singapore has one birth per woman and South Korea has 0.72. More than two thirds of humanity now lives in a country with fertility below the replacement rate.

We don’t know why this is happening. It’s almost certainly the result of a bundle of things: Material conditions, economic insecurity, housing constraints, changing cultural expectations for women, and the fact men still do not undertake half the care work - which has a particularly acute impact now women hold more senior positions in the jobs market.

But we do know what the likely economic impact is. As birth rates fall and societies age, there will be fewer people of working age paying taxes to support more people of retirement age. There will be more people requiring health care, social care and pensions and fewer people working to pay for it. This is not a warning about the future. It is already happening. Real health spending grew by around 36% between 2009 and 2025. About half of that is explained by demographic changes.

This decline in the working age population means that we benefit disproportionately from immigrants. It is basic maths. We did not pay to educate them. We did not pay for their early-years healthcare. In many cases, if they choose to go home one day, we will not pay for their late-years health care. But we do get access to them when they are young and working and making money and spending it.

Of course, the reality is slightly more complicated than this. Immigrants have children who go to school and they fall on hard times and need support. They increase demand on public services. But these complications are relatively minor. The UK blocks immigrants from receiving welfare benefits for at least five years. Eligibility for the state pension requires at least ten years of national insurance contributions.

Immigrants therefore bring economic benefits on their own terms. But they currently do so in a particularly profound way because of the demographic circumstances in which they operate. They provide the precise thing we urgently need: Working age adults.

Subscribe now

We need one more bit of context. This is the fiscal rule. Governments have had lots of different fiscal rules and this one has two, but the one which is most pertinent is that the government should be earning more than it spends. It’s a bit more complex than that - investment is excluded, for example - but that’s the basic principle. This gap between projected earnings and spending is called the headroom.

The headroom can fuck you up. Former chancellor Rachel Reeve initially left herself an eye-wateringly slim bit of headroom. Then when various economic factors wiped it out she was forced to start casting around for some kind of back-of-a-fag-packet saving to make the numbers add up. She settled on welfare reform. Labour MPs could smell the cynicism a mile off and rebelled. The leadership was forced into a humiliating U-turn and looked like it had lost control of the parliamentary party.

Afterwards, Reeves made sure she had decent headroom. In the Spring Statement a few months back, it stood at £23.6 billion.

A nice fat stable headroom reduces media speculation about future tax rises, which allows for a more stable investment and spending environment, which allows for stronger growth. You’ll get small run-of-the-mill changes in forecasting of course, but they won’t force you to suddenly scramble around for a welfare reform down the back of the sofa.

It was just as well that Reeves built that headroom back up, because as she was giving her Spring Statement, the US had just started bombing Iran. This led to a restriction on energy and various other products, which led to another expected surge in inflation, which led to expectations of higher interest rates. The higher those interest rates are the more we have to spend on our debt. The war in Iran probably reduced the UK’s headroom by about £11 billion.

The headroom has never been more important. There is a real sense of nervousness about debt around the Western world at the moment. The US was having a very rough time of it a few weeks back. Concerns about the sustainability of French debt are chronic and increasingly tense.

We face this too, in a particularly pernicious way. We pay a risk premium on our debt, basically because we installed a madwoman as prime minister. And we have very high levels of debt. It exceeds 90% of national income, has tripled since the financial crisis and is still rising. Debt interest alone now accounts for £1 in every £13 of government spending.

You therefore want a nice solid bit of headroom to keep the bond markets happy and to insulate yourself against unforeseen events. You want it to be at least £15 billion. But many people think it needs to stand at at least £20 billion.

This is obviously a bit of a problem. Healey inherited a headroom of £23.6 billion. He wants to keep it around £20 billion. Iran lowered it by perhaps £11 billion. So he probably needs a few extra billion to get back to where he wants to be. And that’s before we even talk about additional help for families struggling with the cost of living over the winter.

This is the economic context in which immigration takes place.

Subscribe now

The government’s political strategy on immigration is simple.

Immigration is currently falling. The public perception that immigration is falling has not caught up. It always takes a while, because it is not in the interest of the politicians, TV stations and newspapers who obsess over immigration to mention it. But Labour plainly hopes that by the time of the next election in 2029, there will have been several years of low immigration, the message will have gotten through, and this will have punctured Nigel Farage’s tires.

The numbers are falling hard. We are currently experiencing an astonishing drop in immigration. Net migration fell from 860,000 in 2023 to 431,000 in 2024 and 171,000 in 2025. That’s a decline of 82% since the early 2023 peak. Asylum claims are also falling 12% year-on-year.

Why? Primarily because of restrictions placed by the previous Conservative government. In January 2024, it blocked international students from bringing family members to the UK. In March 2024, care workers were banned from bringing dependants, like their spouse or children. In April 2024, the salary threshold for work visas and family visas was increased. Then Labour introduced further restrictions. In July 2025 it brought in an increased threshold for skilled worker visas and restricted the partners and children of refugees. There’s also been a decline in people from Ukraine and Hong Kong arriving on humanitarian schemes.

Obviously we don’t know what the numbers will be for this year. Some expect net migration to hit 138,000. Some think it will dip below 100,000. This is a symbolically crucial line - it was the promise David Cameron made over a decade ago, despite knowing he could never fulfil it and would never want to. Now we are in danger of doing so. Some estimate it could go as low as 70,000. Some even think we could experience negative net migration this year, or, more likely, next year.

Subscribe now

In the political class, there is fairly wide understanding that the numbers are in decline. Politicians respond to it in self-interested ways. Shabana Mahmood ignores it because it means her indefinite-right-to-remain reforms are redundant and dangerous. Andy Burnham is starting to mention it regularly, clearly teeing up a position where he can tell voters it is at a historic low when they next go to the polls.

Nigel Farage must find excuses for why it has taken place. “Just look at the net migration numbers,” he said during an interview with the BBC’s Nick Robinson. ‘Oh isn’t it good net migration is coming down?’ But do you know why? It is because there is an exodus. There is now an exodus. Those who are of a situation and a financial position to have a choice are now fleeing the country in numbers.”

This is false in several different ways.

Net migration is the result of a balance between immigration to the UK and emigration out of the UK. So if two people arrived in the UK and one left we would have net migration of one. The reason net migration has reduced is because immigration has come down so drastically. It is as simple as that.

It is also not the case that emigration is high because Brits are leaving in droves in horror at all the foreigners they now have to live with. This is obviously true, because moving to live with foreigners in order to escape foreigners makes no sense at all. But it is also true in terms of basic data.

In the year ending in July 2025, 63% of emigrants were non-UK nationals and just 36% were UK nationals. Many of those non-UK citizens leaving were doing so because they’d finished studying. Around half of non-EU migrants leaving in this period were originally on study-related visas.

Obviously this raises the question of why we care about lowering student visas. They come, fund our universities, spend money in the UK and then go. What kind of country would not want that? A mad country, and that indeed is what we have become.

For what it’s worth, the data does show an increase in UK nationals leaving the UK but this is because the Office of National Statistics (ONS) changed its methodology. It used to use data from the International Passenger Survey but found that this was probably underestimating the numbers. So it switched to using Department for Work and Pensions (DWP) tax and benefit records.

While we’re here it’s worth briefly noting a savage element of all this. In its heart of hearts, the government probably doesn’t want to reduce student and worker visas. It knows that these are the cohorts which are economically beneficial. It would really like to reduce refugees, who generally are not. But it has limited ability to reduce refugee numbers. All the policy levers which it can pull affect students and workers. So with no other option, it pulls those levers.

This means that the economic damage of reduced immigration is two fold - firstly from reducing the overall numbers and secondly from changing the composition of the people who do come. As Ben Brindle, researcher for the Migration Observatory at the University of Oxford, said: “The categories of migration [the government] would most like to reduce are the ones least amenable to policy. As a result, migration of groups that make positive or broadly neutral economic impacts - such as skilled workers and partners of students - is down, while asylum-related migration remains high. Since refugees have lower employment rates and often need a lot of support from the state, this means that the composition of recent migration has probably become less favourable from an economic perspective.”

Subscribe now

The reduction in immigration numbers will impact everywhere. Universities, for instance, are struggling. Successive governments have prevented them from increasing tuition fees and encouraged them to top up funds by accepting foreign students. Now they are being told they can’t do that either.

Care homes are also struggling. But it has now been made difficult for them to hire enough staff. And things are likely to get much worse if Mahmood’s reforms go through, as it would likely trigger an exodus of care workers.

But the most immediate impact will be on the chancellor’s headroom in next week’s Budget.

The OBR’s estimate of the impact of migration on the fiscal forecast makes for sobering reading. It estimates that if net migration is 200,000 a year lower than its central forecast - almost certainly the case - then borrowing will be £19.9 billion higher in 2028-29. This alone wipes out nearly all of the chancellor’s headroom. And that’s before we even mention the impact of Iran or the need to protect people against rising bills.

The reality is this: The reduction in immigration is making our economic situation significantly worse. It is eradicating, as far as we can tell, the entirety of the chancellor’s headroom. It will lead to reduced economic growth, increased borrowing and increased national debt as a percentage of GDP. Pursuing the anti-immigration agenda means we have to put up taxes, or reduce spending, or borrow more, or do all three at once.

The government believes that it must go into the next election saying that it has reduced immigration. I can understand the reasons for that. There is a political risk to high immigration numbers. But there is also a political risk to crumbling infrastructure, high taxes, low growth and piss-poor public services.

This risk is never discussed because right-wing politicians, right-wing newspapers and right-wing TV stations do not like to admit that immigration is economically beneficial. So instead we are trapped in this fantasy land where you can reduce immigration without facing the consequences, even as it turns Healey’s Budget calculations into a nightmare.

That is the unspoken story hanging over next week’s Budget. You won’t hear it mentioned much in the TV coverage. But you will likely see it in the small print of that OBR document.

At some point, the government is going to have to tell a clear honest story about economic growth and immigration. It is going to have to lead the public in a debate about what a politically and economically sustainable level of immigration is. Without it, we are trapped in a torture chamber, without any plan for how to escape it.

Subscribe now

Odds and sods

If you want to learn more about the economic impact of immigration, I suggest you follow Sunder Katwala on BlueSky. His post on this issue inspired me to write this - not the first time that’s happened either.

You can listen to this newsletter as a podcast at the top of the page or on Spotify. You can follow me on BlueSky, Instagram or TikTok.

This week’s column for the i paper was on Trump’s betrayal of Ukraine. You can read it here. Our Origin Story Revisited was on Anti-Vaxxers. You can listen to it here.

I spent most the week playing Hellraiser Revival on the Switch 2. The reviews have been mixed, veering on negative. If I was a video games reviewer I would probably say all the things they did: It does not do anything new in gameplay mechanics and is in fact a composite of stolen ideas from other games, particularly Doom and Resident Evil.

But I am not a video games reviewer. I am a fan of Hellraiser. I think it is perhaps the most original, daring and profound of all the horror franchises. It has things to say about sex, death, pain and guilt which no other horror even comes close to articulating. The book in particular The Hellbound Heart - is a vital cultural artifact from the gay scene during the Aids scare, but really it goes much deeper than that into desire, need and self-disgust. It is extraordinary.

What this game offers is a chance to exist in that world. And when a game comes along that allows you to drop into a fictional universe you’ve spent a long time watching and reading it does something really quite unique, which no other kind of medium can achieve. It lets you live within it.

Also, that game is absolute filth. Proper old school filth, of the precise kind that Mary Whitehouse warned us all about. A great part of the enjoyment in this game is to imagine her spinning frantically in her grave, knowing that she won the battle but she comprehensively lost the war.

Right, that’s it for this week. Fuck off.