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So it would seem. The Office of Budget Responsibility has incorporated the impact of the latest ONS population projections into the forecast; the result, an extra 350,000 people living here by the end of the forecast period. More people means more workers means higher tax revenues, to the tune of about £7.5 billion in 2028-29. That accounts for more than the entire net tax cut of about £6 billion for that year announced in the Budget.
But more interesting than the fact that immigration raises GDP and tax paid is the further analysis undertaken by the OBR to deal with some of the key criticisms of its approach. There are at least three.
First, that the OBR’s analysis is asymmetric – that it, it ‘scores’ the increase in tax revenue, but not the resulting increase in spending required to maintain the quality of public services. Unfortunately, the OBR has absolutely no power to do anything about this directly – it’s the Treasury that tells it what to assume about spending.
So if the Treasury tells it that spending won’t be adjusted to reflect the higher population, the OBR has to accept that. In that sense, the critics are correct – the Treasury is using higher migration as a way to cut public spending by stealth, and recycling the proceeds into tax cuts.
The OBR can, however, calculate what the net impact would be *if* spending was increased, and, this time, it has. This shows that if spending did indeed rise to reflect higher immigration, immigration would still be a very significant net positive, perhaps about £5 billion net.
So even if you assume that spending will have to rise to meet demand, migration still ends up making the difference between rising and falling debt. In this chart, the OBR shows that the difference between a high and low migration scenario – even after adjusting spending to match, as shown in the dotted lines – is the difference between debt rising and falling, by almost 5% of GDP, or £150 billion in cash, at the end of the forecast period.
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