UK: Soaring UK Migration Gives Hunt Up to £18 Billion for Tax Cuts

Soaring migration to the UK could hand Chancellor Jeremy Hunt an £18 billion ($22.7 billion) windfall for tax cuts in next month’s budget by lifting economic growth, according to new analysis.

Using revised population projections from the Office for National Statistics, Bloomberg Economics calculated that the economy would be £43 billion bigger in 2028-29, the year the government has to deliver on its fiscal rules.

The development potentially puts the government in the difficult position of benefitting from a policy it opposes. Prime Minister Rishi Sunak has pledged to clamp down on record migration after a backlash from the right of his party and a surge in popular support for Reform, the successor to the anti-migrant UKIP party.

“This leaves the ruling Conservative Party potentially facing the awkward situation whereby unwanted record-high migration helps deliver tax cuts,” economists Ana Andrade and Dan Hanson wrote in an analysis published Wednesday.

Last month, the ONS’s new estimates showed that the population is set to grow twice as fast by 2030 as previously thought, driven mainly by migrant flows. Over the 15 years from 2021, the UK population will rise from 67 million to 73.7 million, with migrants accounting for 6.1 million of the increase.

The statistics office is now forecasting net migration to settle at 315,000 in the long run, up from a previous estimate of 245,000.

Hunt and Sunak have made no secret of their desire to cut taxes in the budget on March 6 as they seek to win over voters ahead of the general election later this year. But doing so on the back of receipts from rising migration would risk inflaming its core voter base.

Net migration peaked at 745,000 in 2022, three times higher than before Britain split from the European Union. To bring it down, dependent visas for students and care workers have been scrapped and the minimum salary requirement for the skilled worker visa has been increased. The government said the policies would have reduced net migration in 2022 by 300,000.

Hunt is in a bind, though. The fiscal position is tight, with chancellor warning last week that “it doesn’t look like I’ll have the kind of room that I had for those very big tax cuts in the autumn.” Bloomberg reported that the Office for Budget Responsibility told the chancellor he has around £14 billion of headroom against his commitment to lower debt as a share of GDP, roughly the same buffer for bad news as last November.

Andrade and Hanson said the OBR will “almost certainly incorporate” the new population projections into the next iteration of its budget forecast on February 14.

However, they said the £18 billion is “a top-end estimate” which the OBR may adjust lower to account for the new tighter controls on legal migration. There is also a question mark over whether migrants post-Brexit generate as much economic output as when there was free movement of labor inside the EU.

The tax benefit would also assume no change to planned spending on public services, which would imply less spending per head. The Institute for Fiscal Studies has said the current spending plans already look implausible.

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