Report Influence

  • Open Europe was first to produce comparative estimates of the impact of restricting EU migrants’ access to in-work benefits in terms of reducing the financial incentives for them to move to the UK.
  • In his key Immigration speech in November, David Cameron adopted a number of these Open Europe proposals rather than an emergency brake on EU migrants, which Open Europe had advised against.
  • Following his speech, David Cameron acknowledged that Open Europe’s research into this area is compelling.
  • These Open Europe proposals have been adopted to varying degrees by all of the UK’s mainstream political parties.

24 November 2014

The aggregate economic benefits of EU free movement to the UK economy mask several challenges

EU 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 presented as an overall benefit, since it helps keep production costs low – which in turn makes the UK economy as a whole more competitive. However, downward pressure on wages is simultaneously cited as a challenge, since it 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.

EU migrants’ access to the UK welfare system: Why in-work benefits should be the focus of reform

EU migrants can access the UK’s welfare system in two different ways:

1) Out-of-work benefits (including unemployment benefits): EU rules governing this specific area need to be changed to ensure fairness, but 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.

2) In-work benefits (including tax credits, housing benefit, access to social housing and the NHS): Unlike in the vast majority of EU countries, these benefits are non-contributory and universal in the UK. This is far more significant. EU migrants are slightly more likely to claim in-work benefits than UK nationals. Data show that 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.

Having to make in-work benefits immediately available to EU migrants effectively acts as an incentive or ‘subsidy’ for them to perform low-paid jobs in the UK – which does not exist to the same extent in France or 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.

Open Europe’s proposal: How to save EU free movement by making it fairer

Under Open Europe’s proposal to save EU free movement, national governments would be allowed 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 of the host country. 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 financial incentive to come to the UK for low-income work.

The biggest overall impact of our reform proposal 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 examples highlight the impact that our reforms could have on the financial incentives for the lowest-paid.

According to Open Europe’s 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. However, 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 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%.

Newly-arrived EU migrants in the UK would still qualify for contributory benefits, as in other countries. Open Europe’s proposal would therefore not end the basic right to work anywhere in the EU. As such, it could simultaneously win the backing of the UK public while also drawing support in Europe.

That said, British politicians, as well as 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.

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