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New Open Europe briefing: EU migration - How David Cameron can get back on the front foot at home and in Europe without ending free movement

24 Nov 2014

Ahead of David Cameron’s speech on EU migration, Open Europe has today published a report arguing that rather than putting a cap on free movement, he should seek to bring back control over who can access in-work benefits in the UK, restricting EU migrants’ access to tax credits, NHS and social housing for a number of years. It would reduce pressures on both wages and local services. Under OE’s proposal, in some cases, without access to in-work benefits EU migrants’ take home pay could drop below that which they would receive in their home states, meaning that the move would no longer make financial sense.  It would also redefine EU free movement to mean the movement of “workers” – not access to benefits – as originally intended.  

This could be a more effective way to manage the number of EU migrants coming to the UK to perform low-paid or low-skilled work over the long-term – which opinion polls suggest most concerns the British public – over than a temporary ‘emergency brake’. At the same time, it would allow free movement – and its benefits – to stand democratically.  The proposal would strike the best balance between competiveness and democratic control, at home, and achievability abroad.    

The study also finds that “benefits tourism” is a secondary issue – of those claiming out-of-work benefits in the UK, only 2.5% are EU migrants.  OE will shortly be publishing a second study looking at ideas for an EU “emergency brake”.  

Open Europe’s Pawel Swidlicki said
 

“EU free movement is a net benefit but masks a series of concentrated challenges. While ’benefit tourism’ is in many ways a red herring, there is a fundamental issue around the UK’s generous in-work benefits, access to which is immediate for working EU migrants. These benefits – designed to help people from welfare into work – therefore act as an effective government-backed subsidy for EU migrants to perform low-paid jobs which does not exist in France or Germany to the same extent. Restricting these in-work benefits would make a huge difference to potential migrants’ financial incentives while allowing free movement to stand.”  

“However, British politicians, commentators and voters should be aware of the running trade-off involved; fewer EU migrants could well make the UK economy less competitive overall – particularly given that firms often consider them more productive than UK natives.”  

To read the full study: http://archive.openeurope.org.uk/Content/Documents/Open_Europe_Free_Movement_141124.pdf
 
Executive Summary
 
David Cameron should not seek to put an outright cap or quotas on EU free movement. First, though much reform can be achieved in Europe, this is likely to be tantamount to leaving the EU. Second, free movement is a net benefit to the UK economy.  

However, the aggregate economic benefits mask several concentrated challenges, which are now undermining public confidence in free movement and the EU more broadly. The evidence suggests EU migration keeps wages down for the lowest paid. This is often cited as an overall benefit – production costs stay low, making the economy as a whole more competitive. However, downward pressure on wages is simultaneously cited as a challenge, since this has a disproportionate impact on native workers at the lower end of the pay scale. 

This balance must be taken seriously and be constantly reviewed if free movement – and its benefits – are to stand democratically. The best way to address these challenges without ending free movement is to re-write the rules around migrants’ access to benefits.  

There are two aspects of welfare access in the UK:  

Out-of-work benefits: Including unemployment benefits. Whilst the EU rules governing this area need to be changed to ensure fairness, so-called ’benefit tourism’ is in many ways a second order issue. EU migrants are far less likely to claim unemployment benefits than UK natives.  As of February 2014, only 2.5% of the total unemployment benefits claimants were EU migrants.  

In-work benefits: Including tax credits, housing benefit, access to social housing and the NHS. Unlike the vast majority of EU countries, these benefits are non-contributory and universal.  This is far more significant. EU migrants are slightly more likely to claim in-work benefits than UK nationals. EU migrants make up 5.56% of the UK workforce, but families with at least one EU migrant make up 7.7% of in-work tax credit claims.  
This matters because having to make these in-work benefits immediately available to EU migrants effectively acts as an incentive or ‘subsidy’ for EU migrants to perform low-paid jobs in the UK, which does not exist to the same extent in France and Germany.  It also prevents the UK from deploying tax credits specifically as an active employment policy targeted at facilitating the re-integration of unemployed UK natives back into the labour market, as was their original intention.

Open Europe proposes new EU rules which would allow national governments to limit newly arrived EU migrants’ access to non-contributory out-of-work and in-work benefits, social housing and publicly funded apprenticeships for a certain period. After this qualification period, EU migrants would have full access to the welfare system. The exact period could be anywhere between one and five years, with somewhere in the middle (2-3 years) being the most politically feasible at home and abroad.

The proposal would substantially decrease the income gap between the UK and the most common ‘sending states’, in turn reducing the incentive to come to the UK for low-income work.  

While our reform proposals would apply equally to all citizens from other EU member states – from Luxembourg to Croatia – it follows that the biggest overall impact will be on those member states with large flows of migrants into low-pay employment in the UK. Our illustrative examples are therefore based on three EU member states to where this generally applies; Spain, Poland and Bulgaria.  Individual reasons for migrating are various and complex, but our illustrative examples highlight the impact that our reforms could have on the financial incentives for the lowest-paid.  

According to new Open Europe estimates, for a single worker earning the minimum wage in Poland coming to work on the UK minimum wage, removing immediate access to in-work benefits would halve the financial incentive to migrate to the UK once the cost of living is factored in [on a Purchasing Power Parity basis], with the potential income boost falling from 155% of Polish weekly take-home pay to 72%.  

Similarly, a single worker earning the minimum wage in Spain coming to the UK to work on the minimum wage would see their income boosted by a third under the current rules but under Open Europe’s proposed new rules, their average weekly income would in fact drop by 8% compared with what they would earn by staying in Spain. The new rules could also reduce incentives for Spanish unemployed to move to the UK, though the exact impact will need further investigation.

Weekly take-home pay: single earner, minimum wage, no dependent children (UK GBP at PPP)


UK nationals and EU migrants under current rules

EU migrants in UK under OE rules

Spanish minimum wage

Polish minimum wage

Bulgarian minimum wage

Salary

£227.50

£227.50

£178.07

£174.06

£79.48

Total deductions

-£30.99

-£30.99

-£11.31

-£60.05

-£18.20

Income post deductions

£196.51

£196.51

£166.77

£114.01

£61.28

Benefits/tax credits

£93.77

£0.00

£47.30

£0.00

£0.00

Total

£290.28

£196.51

£214.07

£114.01

£61.28

 

 

 

 

 

 

Effect on income of moving to UK under current rules



+35.6%

+154.6%

+373.7%

Effect on income of moving to UK under OE rules



-8.2%

+72.4%

+220.7%

Source: Open Europe calculations

The effect of withdrawing immediate access to in-work benefits would be even greater for migrants with dependent children. For example, for a Polish single parent with two dependent children earning the average Polish wage, moving to the UK to earn the minimum wage, their average weekly income would in fact drop by 27%; such a move would make little sense from a purely financial perspective.

Weekly take-home pay: single parent, UK minimum wage, two dependent children (UK GBP at PPP)


UK nationals and EU migrants under current rules

EU migrants in UK under OE rules

Spanish average wage

Polish average wage

Bulgarian average wage

Salary

£227.50

£227.50

£433.65

£387.90

£191.69

Total deductions

-£30.99

-£30.99

-£80.77

-£136.67

-£43.90

Income post deductions

£196.51

£196.51

£352.88

£251.23

£147.79

Benefits/tax credits

£330.52

£0.00

£9.45

£18.43

£1.66

Total

£527.03

£196.51

£362.33

£269.67

£149.45

 

 

 

 

 

 

Effect on income of moving to UK under current rules



+45.5%

+95.4%

+252.6%

Effect on income of moving to UK under OE rules



-45.8%

-27.1%

+31.5%

Source: Open Europe calculations

Newly arrived EU migrants in the UK would still qualify for contributory benefits, just like in other countries, so they would have certain social protections on top of existing discretionary local government support for genuine ‘hard luck’ cases. The proposal would therefore have an impact on the number of migrants coming to the UK to work on low-incomes but would not end the basic right to work anywhere in the EU – for UK and other nationals alike. It could simultaneously win the backing of the UK public while also drawing support in Europe.

However, British politicians, commentators and voters should constantly be aware of the running trade-off involved in these policies. Fewer EU migrants could well make the UK economy less competitive overall – particularly given that firms often consider them more productive than UK natives.

Similarly, migration policies alone cannot address the challenge of getting UK citizens into work. This requires that domestic policies on skills and welfare equip and incentivise British nationals into the job market.

Finally, these reforms would not be mutually exclusive to other policies on EU free movement.

Notes for editors:

1) For more information, please contact Pawel Swidlicki on 0044 (0)796 607 0172, Mats Persson on 0044 (0)779 946 0691 or the Open Europe office on 0044 (0)207 197 2333.

2) Open Europe is an independent think-tank calling for sweeping reform of the European Union with offices in London and Brussels, and a partner organisation Open Europe Berlin. Its supporters include: Lord Leach of Fairford, Director, Jardine Matheson Holdings Ltd; Lord Wolfson, Chief Executive, Next Plc; Sir Simon Robertson, Deputy Chairman, HSBC Holdings Plc; David Frost CMG, Chief Executive, Scotch Whiskey Association; Hugh Sloane, Co-Founder and Chief Executive, Sloane Robinson; Sir Stuart Rose, former Chairman, Marks and Spencer Plc; Jeremy Hosking, Founder, Hosking & Co Ltd; Sir Henry Keswick, Chairman, Jardine Matheson Holdings Ltd; Sir Martin Jacomb, former Chairman, Prudential Plc; Lord Sainsbury of Preston Candover KG, Life President, J Sainsbury Plc; David Mayhew, former Chairman, JP Morgan Cazenove; Tom Kremer, Chairman, Seven Towns Ltd; Michael Freeman, Co-founder, Argent property group.

For a full list, please click here:
http://archive.openeurope.org.uk/Page/Supporters/en/LIVE

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