Details, details …
Whatever the actual scope of the restrictions proposed on in-work benefits, and whether they now apply only to some tax credits (rather than the manifesto-promised child benefit too), it’s interesting to look at what the draft Decision says about the circumstances in which such restrictions could be allowed.
The stated intention is to provide a
safeguard mechanism that responds to situations of inflow of workers from other Member States of an exceptional magnitude over an extended period of time
And not only does the Member State needing safeguarding have to be in such a situation, but it must also be that
[the] exceptional situation exists on a scale that affects essential aspects of its social security system, including the primary purpose of its in-work benefits system, or which leads to difficulties which are serious and likely to persist in its employment market or are putting an excessive pressure on the proper functioning of its public services.
So there are three things to look at: social security system effects, employment market difficulties, and pressure on public services.
Taking the easiest one first so as to rule it out from the start, clearly the UK does not appear to have any serious difficulties in the employment market in terms of the general availability of jobs, as employment rates are at record levels and there are still lots of vacancies. Indeed, in his speech at the Siemens factory in Chippenham announcing the successful outcome of this stage of the negotiations, the Prime Minister pointed out that since he had been Prime Minister, employment in the UK had grown by over 2 million, and as my chart below shows, the economy has certainly had the capacity to provide employment for more people than ever before, wherever in the world they have come from, in inflows of considerable magnitude.
Simple employment levels and rates aren’t everything of course, but while there is some evidence of direct and indirect pressure on wages from migration, it might be hard to convince others that this is a serious difficulty in the employment market while wages in the UK are so much higher than in many other Member States.
So is there instead an exceptional situation in the UK affecting essential aspects of its social security system, including the primary purpose of the in-work benefits system? Well if we are now only talking about in-work tax credits, as the chart above shows, it’s probably fair enough to say that inflows of workers from the EU of exceptional magnitude have occurred. Indeed that must be so by definition, as without such a flow, the safeguarding situation cannot arise. But looking at the same period during which this flow has occurred, what’s happened to the UK’s tax credits? The number of lower-earning in-work claimants increased by about 100,000 from April 2010 to April 2011 but has fallen steadily since and in December 2015 was 100,000 lower than in April 2010. The amount of total spending on all tax credits peaked in May 2012 and has been declining gently ever since. It certainly hasn’t been soaring away, and of course the significant cuts that were announced in the Summer Budget and subsequently reversed for tax credits were not reversed for Universal Credit and the bill will this reduce significantly as people are moved onto Universal Credit between now and 2017. So from the perspective of cost pressure on the social security system, there’s not much to see here.
Now if it’s instead about the primary purpose of tax credits (and one might wonder why there would be any reason to include this in the draft Decision otherwise) the current system was introduced with the stated policy intent to reduce child poverty, primarily by encouraging people into work. While clearly successful in those terms it must be broadly true at some level that the intention was to reduce child poverty amongst families then living in the UK, and not to reduce child poverty that then existed in other Member States by encouraging people with children in other countries to come with their families and work in the UK supported by tax credits. Nor indeed to encourage single people to come to work in the UK with the assurance that if they did have children in the UK, tax credits would provide a safety-net to ensure that if they did have children in the UK any risk of child poverty would be mitigated by the benefits system. On that basis it might be possible to argue that paying tax credits to new arrivals in the UK is not part of the primary purpose of its in-work benefit system.
However, this seems exceptionally shaky legal ground because the implication of the Decision would be that if a Member State had a ‘domestic’ policy purpose to provide an advantage to its own citizens, then the advantage provided by the policy could, in principle, be withheld from other EU nationals for this reason alone. It doesn’t seem that these grounds could possibly provide a defence to any challenge to the ECJ that Treaty rights to free movement were being infringed.
Well what if the exceptional situation in the UK is instead about ‘excessive pressure on public services’? While lots of the data on UK employment and wages is in the public domain, and all the data on tax and welfare is at least held by government, use of public services is a far more nebulous concept and it isn’t at all clear that anyone really knows either the extent of use of these services by other EU citizens, or the extent to which that use puts unacceptable pressure on those services. More significantly, EU citizens are not the only migrants to the UK, but account for very roughly only half of net migration (albeit less than that proportion of the increased inflow of workers). If pressure from migration generally and in total is what is putting excessive pressure on public services, then one might query why those other Member States whose citizens presently benefit from the ability to move freely to the UK would accept any detriment to themselves to ‘safeguard’ the UK — because in principle and simply as a matter of logic the UK could safeguard itself by taking measures within its own power to restrict non-EU migration by however much is felt necessary to reduce the pressure on public services by the required amount.
This of course takes us back yet again to the fundamental question of how much the inflow of workers to the UK ‘needs’ to be stemmed to return the social security system to where it ought to be, or to reduce the excessive pressure on public services, and what impact restrictions on benefits payable to EU workers and their families has actually been estimated to have on these inflows.
Requests to the Treasury and to HMRC for the statistical information behind the policy decision to seek to restrict benefits to new arrivals from other Member States have been refused by both. Perhaps they are mere details …
