Office for Budget Responsibility analysis indicates chancellor’s hopes of achieving surplus appear at odds with policy of reducing net migration

George Osborne’s hopes of securing a budget surplus by the time of the next general election rest on continuing high levels of net migration to Britain, the Office for Budget Responsibility has made clear.



The OBR’s latest economic and fiscal outlook published on Wednesday renews its finding that net migration has a positive impact on the British economy and says that a “high level” of net migration of 265,000 a year will fuel growth by £4.5bn by 2019-20 and £6bn by 2020-2021.

It also underlines that the chancellor’s hopes of achieving a budget surplus is directly at odds with the home secretary’s policy of reducing net migration from its current level of 320,000 a year to the “tens of thousands” by the time of the next election.

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Should net migration fall below 100,000 by 2019-20 “the surplus in 2019-20 would fall closer to zero”, the OBR said. The point was underlined by the OBR’s chairman, Robert Chote, who said his organisation’s view that Osborne would secure a budget surplus of £10bn was dependent on different assumptions about net inward migration.

The analysis suggests that a “low migration scenario” would cut economic output and the size of the economy by 0.8% and lower house prices by 1.3%. A “high migration scenario” would add 0.8% to economic growth and increase house prices by 1.3%.

The clear implication is that the government will either miss its 100,000 net migration target or fail to secure a budget surplus by the next election, implying possible extra tax rises or further spending cuts.

“Higher inward net migration is generally positive for the public finances,” Chote said, while presenting the OBR’s budget analysis “because inward migrants are more likely to be of working age than the native population … We estimate that the high migration variant would increase the budget surplus by about £4.5bn by 2019-20, while the low migration variant would reduce it by the same amount. This is not to suggest that we recommend any particular level of migration or that the government could not offset different outcomes with tax and benefit changes.”

The assumption that high levels of net migration have a positive impact on the British economy rests on the basis that migrants of working-age pay more tax and receive fewer benefits.

The OBR’s central forecast of net migration of 329,000 in 2015 declining to 185,000 by 2021 is based on projections by the Office for National Statistics, which reflect the average levels of net migration for the past 20 years, which are much lower than in the past five years.

When asked about net migration figures breaching the official 100,000 target, Treasury officials said the numbers represented “scenarios, not forecasts”.