February 16th, 2016

EU Reform - Do The Current Proposals To Restrict EU Migrants' Access To Benefits Work?

One of the biggest difficulties the Prime Minister has faced is getting any agreement on restricting EU Migrant's Access to benefits, especially in work benefits. Below is a short brief on these issues:

       ERG Brief: EU migrants’ access to benefits

  • Limiting tax Credits to EU migrants, even if for four years, is unlikely to reduce migration as tax credit take up by EU Citizens in low for these years only reaching a full take up after the fourth year.

  • Restricting EU migration and/or implementing discriminatory access to tax credits would require Treaty change to ensure ECJ case law is overridden.

What has David Cameron promised so far on migration/welfare?

David Cameron: Speech: 25 March 2013:

  • explore whether we can make economically inactive migrants the responsibility of their home country before they gain any eligibility for UK benefits, and also whether we can

  • work with like-minded European partners to limit the amount we pay in child benefit towards the upkeep of children living abroad.”,

Plans for “Emergency Brake” floated then sunk

  • 16 October 2014: Emergency Brake “considered”:David Cameron is considering demanding that Britain be given an “emergency brake” on the number of European jobseekers after promising MPs a “game-changing” new immigration policy.”, .

  • 26 November 2014: Emergency Brake “ditched”:Plans for a cap on the number of European migrants coming to Britain were dropped by David Cameron just 48 hours before they were due to be unveiled after protests by Angela Merkel, Government sources say… One senior source said the proposal had been included in drafts of a speech by Mr Cameron late last year until a ‘very late stage’. Another official confirmed the proposal had been ditched from the speech setting out his plans for EU reform – 48 hours before it was delivered.”

David Cameron Speech to JCB workers: 28 November 2014 – specific EU pledges

  • In-work benefits block for 4 years: “I will insist that in the future those who want to claim tax credits and child benefit must live here and contribute to our country for a minimum of four years.”

  • No initial out of work benefits: “as Universal Credit is introduced we will pass a new law that means EU jobseekers will not be able to claim it. And we will do this within existing EU law.”

  • EU citizens must have a job offer: “we want EU jobseekers to have a job offer before they come here and to stop UK taxpayers having to support them if they don't.”/ “if an EU jobseeker has not found work within six months, they will be required to leave.”

  • No export of child benefits: “If their child is living abroad, then there should be no child benefit or child tax credit at all”

  • No Council housing for 4 years: “you can't even be considered for a council house unless you have been here for at least four years.”

  • Stronger Powers to deport and re-entry bans: “stronger powers to deport criminals and stop them coming back.” / “longer re-entry bans for all those who abuse free movement including beggars, rough sleepers, fraudsters and people who collude in sham marriages.”

  • Tighten up rules on non-EU spouses: “We must also deal with the extraordinary situation where it's easier for an EU citizen to bring a non-EU spouse to Britain, than it is for a British citizen to do the same.”

Conservative Party Manifesto 2015:

“Changes to welfare to cut EU migration will be an absolute requirement in the renegotiation.”

  • In-work benefits block for 4 years: “We will insist that EU migrants who want to claim tax credits and child benefit must live here and contribute to our country for a minimum of four years.”

  • No initial out of work benefits / EU citizens must have a job offer “we will end the ability of EU jobseekers to claim any job-seeking benefits at all. And if jobseekers have not found a job within six months, they will be required to leave.”

  • No export of child benefits “If an EU migrant’s child is living abroad, then they should receive no child benefit or child tax credit, no matter how long they have worked in the UK and no matter how much tax they have paid.”

  • No Council housing for 4 years: “We will introduce a new residency requirement for social housing, so that EU migrants cannot even be considered for a council house unless they have been living in an area for at least four years.”

Is David Cameron seeking to address ‘Numbers’ or ‘Fairness’?

Although much of the rhetoric is aimed at concerns over immigration numbers it is unclear whether these specific measures are actually designed to address the numbers of EU migrants arriving or the separate issue of fairness to the UK taxpayer and issues surrounding access to welfare.

Are Tax credits a magnet for EU migration?

In his speech to JCB on 28 November 2014 David Cameron made two specific claims to back up the inference that they are a major factor in EU migration:

  1. EU citizens “employed on the minimum wage and who has two children back in their home country, will receive around £700 per month in benefits in the UK. This is more than twice what they would receive in Germany. And three times more than in France.”

  2. tax credits and other welfare payments are a big financial incentive, and we know that over 400,000 EU migrants take advantage of them.”

For in work benefits to act as a magnet for EU migrants it would be logical that migrant would apply for the tax credits once they have arrived in the UK. The evidence however shows that for the first two years of residence in the UK EU Citizens take up of tax credits is below 10%. This then rises over time.

Labour Force Surveys (2008 and 2014), show for 2014 the take up of take credits is well below 10%. For those who arrived in 2009, by 2014, having been in the UK for 5 years, their take up of tax credit was nearly 30%. A similar picture is found using 2008 data.

The evidence demonstrates that only a small number of EU migrants claimed tax credits on arrival or in the first two years, seemingly disproving the assumption that they played a part in a choice to come to the UK. A policy barring tax credits for short periods would therefore have little practical effect.

If tax credits are not a motivation to come to the UK in the short term, could baring EU migrants from tax credits play a part in saving money or potentially shortening an EU migrants’ stay? The evidence on take up would seem to show that full take up only kicks in after 4 years of residency, so a bar on tax credits to have a full impact would need to be for 4 years+.

David Cameron’s second contention was that “400,000 EU migrants take advantage of them”. This 400,000 includes as we see from the graph above EU migrants of all lengths of stay. Firstly those who have been in the UK for over 4 years will not be affected at all, if we assume that those already in the UK will not be barred from claiming what they already have, we are left with new arrivals. Therefore it will be a percentage of new arrivals taking up tax credits – a relatively small number.

Is there an interaction with the living wage?

If tax credits are not a draw to EU migrants coming to the UK, it may be the case that the minimum wage and living wage are and will be, as take up in lower wage jobs will be automatic. But even then it is likely that other factors are more important, such as the political economy in the sending states, and the number of job vacancies in the UK economy.

Will it save money?

Even if these measures were implemented on all EU Citizens arriving from now on for 4 years, it is unclear whether they would make any substantial savings. Take up in the first few years are low. If the measures do deter migrants, whose jobs are taken by UK nationals they could also claim tax credits, (but may produce a saying in jobseekers allowance). If the jobs the EU Citizen takes are genuinely new, but low paid, then it is again it is likely there is a net loss to the exchequer, but one that is difficult to quantify.

What might David Cameron achieve?

The Government is fairly constrained by EU law as to what he might achieve. EU treaties set out the free movement of workers and Union citizenship and cannot be changed without changing the Treaties. The Treaties were used as the basis for EU secondary legislation which cannot be changed except by a majority and with the European Parliament’s blessing and lastly the ECJ has developed a large body of case law, interpreting the Treaties that cannot be repealed by secondary legislation.

EU law background:

The EU legal background is based on the EU Treaties, secondary legislation and case law as created by the ECJ.

Non exhaustive EU Treaty articles free movement is based on:

  • Article 3(2) TEU: Creates an area in which the “free movement of persons is ensured”

  • Art 9 TEU: creates concept of “Citizen of the Union”

  • Articles 4(2)(a) TFEU: Creates a shared competence in the internal market

  • Articles 20 TFEU: Creates “Citizenship of the Union” and right to move freely

  • Articles 26 TFEU: Creates an internal market including free movement of persons

  • Articles 45-48 TFEU: Free movement of workers

  • Article 49: Right of establishment for self-employed people.

Possible caveats?

  • Article 45 3 TFEU includes a caveat for “limitations justified on grounds of public policy, public security or public health”

  • Article 4 (2) TEU: Includes a general provision that the EU will respect member states’ “national identities inherent in their fundamental structures” and “respect their essential state functions

Non exhaustive list of Secondary legislation

  • Directive 2004/38/EC : Right of citizens of the Union and their family members to move and reside freely within the territory of the Member States;

  • Regulation (EU) No 492/2011 on freedom of movement for workers within the Union;

  • Regulation (EC) No 883/2004 on the coordination of social security systems and its implementing Regulation (EC) No 987/2009.

Case law of the ECJ

The ECJ has rules on a wide range of cases concerning barriers to free movement and access to social security.

Potential proposals?

Given the key criteria is EU non-discrimination the easiest course of action is to change the law domestically in a way that does not discriminate between EU and UK citizens.

  • Domestic reform: Make UK tax credit entitlement ‘contributory’.

German and Continental welfare systems generally do not pay out until you have paid in. That is no discriminatory under EU law. To do the same in the UK, a system of contributions could be assessed based on payments in or alternatively all citizens EU or UK could be bared from tax credits until they had worked for four years. Reforms to Tax Credits shifting the burden to the living wage make this easier to accomplish.

  • EU action on discrimination: EU action to allow UK to do more on discrimination against UK workers
    It is reported that the President of the European Commission Jean Claude Juncker is

developing a new package of welfare reforms. The plans are also likely to include rules that will block employees from hiring migrant labourers more cheaply than local workers, said to be a cause of resentment in working-class communities.”

  • Gain a smaller period in which to bar migrants from tax credits?

It is conceivable that the EU may allow an extension for a shorter period, six months to a year. At present the Free Movement Directive makes a distinction between ‘Social Security” and ‘Social Assistance’, social assistance can be bared to EU Citizens for 3 months and longer for jobseekers. This includes such elements as housing and council tax benefit. If tax credits or the future Universal Credit could be classified as ‘social assistance’ rather than ‘social security’ (maternity/paternity payments etc) and the rules on ‘social assistance’ were tightened at an EU level there could be some leeway.

  • EU Treaty Change?

  • Emergency Brake: Change the EU Treaties to qualify EU free movement? This could allow for a new “emergency brake” for periods where large destabilising movements of peoples occur.

  • New definition of EU Citizenship: Create a new definition of EU Citizenship that shifts responsibility for social security to the sending state? This would however potentially place the burden on the UK for paying benefits to UK emigrants or for benefits to other EU states for returning EU migrants.

  • Change EU Secondary legislation changes:

  • Change secondary legislation to bar EU citizens for 4 years? It would be difficult, to protect this change from the ECJ.

  • Allow benefits to be paid at the same level as the sending state. This would again mean that UK Citizens living in another EU state would be paid UK levels of benefit, something other states are unlikely to agree.

Transitional controls for future accessions.

Lastly, the UK will have a veto over future EU accessions and over the terms of the accession. The UK did impose temporary transitional controls for Bulgaria and Romanian accession. The UK could argue for transitional controls on access to the labour market for all future accessions. If this was to be genuine it should be based not on a finite period (even if it is 20 years) but on a genuine measure of the transitional issue. This could be all transitional controls remain until a state is at 80% of average EU GDP.