Is Cameron hoist with his own Referendum petard?

Is Cameron hoist with his own Referendum petard?

Simon Roberts

On 7th May 2015 David Cameron won the general election and formed the first majority Conservative Government for 18 years. Following his victory Cameron restated a Conservative Party manifesto commitment to hold an ‘in-out’ referendum on the United Kingdom’s membership of the European Union (EU) by the end of 2017. The new government included the referendum in the Queen’s speech on 27 May. Cameron has said he will renegotiate aspects of the UK’s terms of membership prior to the referendum and has stated that he will campaign for Britain to remain in the EU if he obtains the reforms he wants.

At the time of writing, Cameron has not specified his demands. However, statements by himself and his ministers suggest that EU legislation on free movement of workers is one of the key issues he wants to renegotiate and he is likely to focus on further restricting mobile workers’ access to social security benefits and tax credits. Specifically, Cameron has stated that he wants to remove, for four years, new migrants’ rights to social security benefits and tax credits.  The Financial Times (18 June 2015) reported that Cameron believes restricting migrants’ access to benefits will persuade voters that the UK should remain in the EU.

Cameron’s proposed new restrictions on benefits make some assumptions about the motives of mobile workers coming to Britain. That is that EU mobile workers come to take advantage of Britain’s “generous” social security system. However, the evidence is that EU migrants move to the UK not to claim benefits but to work. A recent independent analysis commissioned by the European Commission found that employment is the key driver for intra-EU migration and that the share of non-active intra-EU migrants is very small; non-active intra-EU migrants account for a very small share of benefit recipients; the impact of such claims on national social security budgets is very low; and costs associated with the take-up of healthcare by non-active intra-EU migrants is also very small (ICF GHK in association with Milieu Ltd, 2013). Dustmann and Frattini (2014) found that European migrants who arrived in the UK since 2000 are 43 per cent less likely than UK natives to receive state benefits or tax credits.

Despite this evidence, and the very small number of successful claims for tax financed, income-related benefits by EU migrants since the Labour government introduced the ‘Right to Reside Test’ in 2004, Cameron has introduced a stream of minor reforms to further restrict EU mobile workers’ entitlement to UK benefits. Despite the technical nature of these amendments the prime minister took the unusual step of announcing many of these reforms personally. In announcing the intention to further restrict benefit entitlement, he said his intention is “to tighten up our EEA migration rules to ensure our welfare system is not taken advantage of”. Although these further reforms may cause hardship to individuals they only lead to minor savings and are unlikely to have much impact on flows.

However, restricting tax credits for EU workers exercising their right of free movement raises other issues. Working Tax Credit is an in-work benefit to supplement low wages paid by UK employers and is an aspect of Britain’s low wage economy. The proposal … would affect more than 300,000 EU migrants working in Britain and claiming tax credits” because of their low wages.

According to the UK government, the Confederation of British Industry (CBI) and independent analysts EU mobile workers make a strong contribution to the UK economy. For example, Dustmann and Frattini (2014) found that European immigrants who arrived in the UK since 2000 have contributed more than £20bn to UK public finances between 2001 and 2011 and provided the country with productive human capital that would have cost the UK £6.8bn in spending on education.

This is a view supported by the UK government’s own analysis: “In the long run, it is likely that the net fiscal contribution of an immigrant will be greater than that of a non-immigrant. For migrants of working age who enter the country this is relatively clear; the UK is receiving the fiscal contribution of their work, without paying for the education and training that enables them to work.”

John Cridland, CBI Director General, has said that the “vast majority” of people coming to the UK did so to work and “benefit our economy….Our hospitals and care homes couldn’t function without overseas workers; building sites that we need to deliver more homes and big infrastructure projects would also stall.”

As EU recipients of Working Tax Credit are working – many on UK building sites and in the UK’s hospitals and care homes – and paying taxes, Cameron’s proposal to require a four year prior period of residence before becoming eligible suggests that his concern is not only to ensure our welfare system is not taken advantage of”, but to further increase the rate of exploitation of EU mobile workers in Britain’s low wage economy.

However, he may not achieve his aim. Free movement of labour is one of the fundamental principles of the European Union. Article 48 of the Treaty of Rome – now article 45 of the Treaty on the Functioning of the European Union (TFEU) – provides for freedom of movement of workers to be secured within the Community through the abolition of any discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment including social security. Introducing a four year residence requirement would be in breach of a fundamental principle of EU law – equal treatment which applies to both direct and indirect discrimination. To “introduce a legally watertight four-year waiting period for claims, Mr Cameron may need treaty change.”  It has been reported that Angela Merkel has told Cameron that it, “goes without saying that there are things that are non-negotiable. That there are achievements of European integration that cannot be haggled over, for example the principle of free movement and the principle of non-discrimination.” Does this mean Cameron will not achieve any tangible concessions from other EU leaders and will campaign for an out vote? And if so what does “out” look like?

The wording of the in-out referendum question has not yet been decided but at the moment it is thought that it is likely to be “Should the United Kingdom remain a member of the European Union or leave the European Union?”.

The European Union consists of 28 member states. The nationals of those member states enjoy the right to free movement and social security coordination. It is implied by some proponents of an out vote that leaving the EU would take Britain outside the regulations on free movement of workers while allowing the country to remain within the European Economic Area (EEA) and continue to benefit from free movement of capital, goods and services. However, the EEA joins together the 28 EU Member States and the three EFTA States (Liechtenstein, Iceland, and Norway) in a single market where the same rules apply to all member countries.

The EFTA website states:

“The free movement of persons is one of the core rights guaranteed in the European Economic Area (EEA), the extended Internal Market which unites all the EU Member States and three EEA EFTA States – Iceland, Liechtenstein and Norway. It is perhaps the most important right for individuals, as it gives citizens of the 30 (now 31 but there are transitional restrictions on Croatia) EEA countries the opportunity to live, work, establish business and study in any of these countries.

The legislation on the free movement of persons aims at eliminating all obstacles to the freedom of movement, and to give the same rights to nationals of an EEA State and their family members within the EEA by eliminating any discrimination on the basis of nationality.

To complement and support the principle of the free movement of persons, the EEA Agreement also specifies the rules applicable in the fields of recognition of professional qualifications and social security coordination. Both are necessary to enable people to exercise their fundamental right to free movement effectively.”

Thus, leaving the EU but remaining in the EEA will mean that the UK remains subject to the free movement and social security coordination regulations but with little or no influence over the future development of those principles and rules. For those who want to take the UK outside the principle of free movement, social security coordination and non- discrimination the wording of the referendum question therefore needs to offer three options:  Remain in the EU and the EEA, OR Leave the EU but remain in the EEA, OR Leave the EU and the EEA.  Only by leaving both the EU and the EEA could those who wish to end free movement and coordination of social security rights for mobile workers achieve their aim.  However, the price for a small saving on benefit and tax credit expenditure would be losing access to the Single Market.

Dustmann, C. and Frattini, T. (2014) ‘The Fiscal Effects of Immigration to the UK’ The Economic Journal, Royal Economic Society. John Wiley & Sons, Oxford.


Simon Roberts is Associate Professor of Public and Social Policy and Lead of the International Centre for Public and Social Policy at Nottingham University. For more than a decade he has been (variously) UK National Expert and Member of the Editorial Board on the European Commission’s Observatory on Social Security for Migrant Workers and UK National Expert, a Visiting International Expert and member of the Think Tank and the pool of Analytic Experts on the European Commission’s Training and Reporting on European Social Security (trESS) network and is currently the UK National Expert and a Visiting International Expert on the European Commission’s Network of Experts on Intra- EU Mobility – Free Movement of Workers and Social Security Coordination (FreSsco).