In September 2011, the European Commission opened an infringement procedure against the UK concerning the application of the “right to reside test”. According to the European Commission “As this test indirectly discriminates non-UK nationals coming from other EU Member States it contravenes EU law.” The Government had two months to comply with the Commission demands, meaning amending national legislation and stop the application of this test. The Government stuck to its guns, and decided not to comply with the Commission requests. Consequently, on 30 May, the Commission has decided to refer the UK to the ECJ, which may impose financial penalties on it.
The UK applies a ‘residence test’ on access to certain welfare benefits. It is important to note that the European Commission’s legal action against the UK concerns ‘social security’ benefits under EU law, which includes Child Benefit, Child Tax Credit, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Income Support and State Pension Credit. According to the European Commission, the UK’s application of the “right to reside test” to these benefits breaches EU law because it constitutes discrimination based on nationality. The European Commission believes, therefore, the UK is in breach of EU law, because it applies the “right to reside” test instead of the “habitual residence” test as provided in the EU Regulation on the coordination of social security systems and in the EU Regulation that lays the implementing procedures, which were both unanimously agreed by Member States in 2004 and 2009 respectively. The Labour Government could have vetoed these Regulations, but it has chosen to give away more powers to Brussels over social policy, and due to irreversibility of EU legislation the present Government is now stuck with this burdensome legislation.
Under the EU law “habitual residence” test individuals are considered to habitually reside in a Member State if their habitual centre of interest is located there, taking into account factors such as family situation, duration and the continuity of presence, employment and housing situation. The Commission believes these criteria “are strict enough and thus ensure that only those people who have actually moved their centre of interest to a Member State are considered habitually resident there …”. In fact, according to the European Commission “A thorough and strict application of these criteria for determining habitual residence constitutes a powerful tool for Member States to make sure that these social security benefits are only granted to those genuinely residing habitually within their territory.” However, according to the Government “If the European Commission’s view prevails, people with no right of residence and links to a country will be able to claim welfare benefits.” Economically inactive nationals who presently are not entitled would be able to claim benefits by just showing that they are factually habitually resident, becoming in this way a burden to the welfare system. The Government believes therefore that the EU “habitual residence” test is a weak tool, which could lead to an influx of non-UK nationals claiming social security benefits.
The European Commission recalled that under the EU Regulation on the coordination of social security systems, which concerns social security benefits and not social assistance benefits, “EU citizens have the same rights and obligations as nationals of the country where they are covered” and noted “The EU directive on the free movement of EU citizens (…) allows for restrictions of access to social assistance only, but it cannot restrict the access to social security benefits”. The Commission has stressed, “EU rules on coordination of social security do not allow for restrictions on social security benefits in the case of EU nationals that are workers, direct family members of workers or habitually resident in the Member State in question.” Hence, according to the Commission the UK shall solely apply to social security benefits the habitual residence test as it is provided in EU law. Furthermore, the European Commission pointed out, “The “right to reside” test is an additional condition for entitlement to the benefits in question which has been imposed unilaterally by the UK. UK nationals have a “right to reside” in the UK solely on the basis of their UK citizenship, whereas other EU nationals have to meet additional conditions in order to pass this “right to reside” test.” Consequently, according to the Commission, “the UK discriminates unfairly against nationals from other Member States”, breaching “EU rules on the coordination of social security systems which outlaw direct and indirect discrimination in the field of access to social security benefits.” However, a Government spokesperson said, “It is absolutely imperative that we do all we can to protect our benefits system from abuse by migrants. The ‘right to reside’ part of our Habitual Residence Test is a vital and fair tool to ensure that benefits are only paid to people who are legally allowed to live in Britain.” The Government stressed “Our rules on access to benefits are not discriminatory” and “fully support the freedom of workers to work or look for work, while making sure there are reasonable restrictions on access to benefits for those who have never worked in the UK and have no intention of doing so.”
It has been reported that between 2009 and 2011 there were over 40,000 applications for social security benefits in the UK by EU citizens and that 64% of these claims have been rejected, which, according to the European Commission, means that the UK has refused social security benefits to people entitled to it under EU law. It is important to recall that last year, Ian Duncan Smith, the Secretary of State for Work and Pensions, told the House of Commons, “The habitual residence test is vital to protect our benefits system and to stop such benefit tourism.” He also pointed out, “If we did not have the British residency test, it is estimated that right now the cost would be something in the order of £155 million, although that could change.”
Under the EU Treaties social policy is a matter for member states’ governments but “The Union may take initiatives to ensure coordination of Member States' social policies.” It is important to note that the Regulations on the coordination of social security systems are based on Articles 48 TFEU whereby “The European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure, adopt such measures in the field of social security as are necessary to provide freedom of movement for workers” and on Article 352 TFEU. The Treaty does not provide
powers other than those of Article 352 to take measures within the field of
social security for persons other than employed persons. Under this provision “If action by the Union should prove necessary, within the framework of the policies defined in the Treaties, to attain one of the objectives set out in the Treaties, and the Treaties have not provided the necessary powers, the Council, acting unanimously on a proposal from the Commission and after obtaining the consent of the European Parliament, shall adopt the appropriate measures.” The EU has been using this provision to extend its competence, including social security.
The member states’ social security systems are the result of long traditions deeply entrenched in national culture and preferences. It is essential that member states maintain their national sovereignty over social security. The EU Regulations do not provide for the harmonization of the national social security systems, but for their coordination. The Member States are free to decide on benefits and their financing. The UK must have the exclusive right to decide eligibility and structures for welfare benefits. Social security benefits should be dealt at national level and not at EU level. However, the so-called coordination of national systems, does not fully allow the Member States to retain their sovereignty with regard to social security. The rules for coordination of national social security systems fall within the framework of free movement of persons so that equality of treatment under the different national legislation for the persons concerned is guaranteed within the EU. In order to ensure that the application of the different member states legislations does not adversely affect the right to free movement, all member states authorities, including social security institutions and courts are obliged to comply with common rules and principles provide by the coordination provisions. Hence, Member States are not totally free in deciding their social security systems, as they must take into consideration, the fundamental freedoms as well as general principles of Union law. Consequently, coordination rules and principles can have a huge impact on national social security systems, as the present case clearly illustrates.
Ian Duncan Smith has recently said, ‘I won’t be deterred. I will continue to press on with reforms of the measures we currently have in place, not only to enforce the “right to residency” test we have now but also to strengthen the test.” Then he stressed, “I’m determined to ensure that taxpayers’ money in this country is not squandered on benefits tourism.” However, the UK, as well as all EU Member States, is required to fully comply with the ECJ’s judgements. Article 260 TFEU provides, “If the Court of Justice of the European Union finds that a Member State has failed to fulfil an obligation under the Treaties, the State shall be required to take the necessary measures to comply with the judgment of the Court.” Moreover, under Article 4 TEU, Member States have a general duty to fulfil their EU obligations.
The ECJ has been deeply interfering with the UK’s legal system, overriding national rules. In fact, the ECJ‘s rulings have left UK social and employment legislation in a mess. The ECJ has also been ruling on entitlement of benefits in the UK. It is important to recall that the ECJ ruled in the Case C 310/08, London Borough of Harrow v Nimco Hassan Ibrahim, Secretary of State for the Home Department, that a parent who is the primary carer of a child who is in education have a right of residence in the host Member State, in this case the UK, even if they cannot support themselves without social assistance. Consequently, the ECJ ruling has allowed them to become a burden on the UK’s social support system. Ms Ibrahim who has never worked in the UK has been able to claim house as well as other benefits.
It is well known that the ECJ has been playing a fundamental role in defining and extending the scope of social security coordination. The ECJ has been using the EU Regulations on the coordination of social security systems as instruments intended to ensure the right of EU citizens to move and reside freely within the EU, independently of the exercise of any economic activity. In fact, unsurprisingly, by broadly interpreting the principle of non-discrimination according to nationality, the ECJ has built its case law on equal treatment in favour of EU citizens. Moreover, the ECJ has developed in its case law the concept of indirect discrimination as an obstacle to free movement.
The Court will now investigate the Commission’s allegations and will consider whether the UK is in breach of EU law, particularly EU rules on the coordination of social security systems which forbid direct and indirect discrimination in the field of access to social security benefits, by applying the "right to reside" test instead of the EU 'habitual residence' test to EU citizens who claim social security benefits in the UK. The ECJ will consider whether the UK, by applying the “right to reside” test is discriminating against nationals of a Member State who make use of their right to move freely within the EU.
If the ECJ finds that the UK is contravening EU rules on the coordination of social security systems and rules therefore against the UK, the Government would have to followed its ruling and take measures to bring UK law in line with EU law. If the UK fails to take the required measures to comply with the Court's judgment, meaning amending national legislation, it might face fines. The ECJ has the power to impose financial penalties on Member States, which fail to comply with a previous Court’s judgment. Basically, at Maastricht, Member States agreed to be subjected to penalty payments, which would be paid for by the taxpayers. Hence, if the Court considers that the UK has not complied with its judgement it may impose a lump sump or penalty payment on it. The Court has total discretion in setting penalty levels, with no upper limit. This would be a huge blow for taxpayers. The UK’s taxpayers would face a bill of Court’s costs and penalty payments, on top of that, as the Daily Mail noted, “The taxpayer will be appalled to discover that, if the UK loses the case, jobless migrants who have never contributed a penny to the Exchequer will be free to travel here and instantly pocket millions in State handouts.” If the UK decides against the UK, it would be very difficult for the Government to introduce measures intended to prevent abuse of the welfare system. This case is therefore wake-up call for David Cameron.
The EU, its legal system and the European Court of Justice, have a seminal impact on the daily lives of the British people. The framework of European law within the jurisdiction of the Court of Justice has obvious implications for parliamentary sovereignty. The only solution to this problem is to lift the supremacy of EU law, the direct applicability of EU law as well as state liability. It is a matter of urgency to repatriate powers on employment and social policy, otherwise the UK employment and social issues will continue to be decide by Brussels. The UK must regain control over its social and employment policy. The ECJ’s powers and the impact of its rulings in the UK must be properly adressed. As Bill Cash stressed, “We need to repatriate our democracy and govern ourselves.” Hence, as Bill Cash has been saying, “It is therefore essential that the Prime Minister introduces a Bill so that a Referendum vote can take place before the General Election, followed by a fundamental renegotiation of the existing European Treaties, in line with the democratic wishes of the British people as expressed through that referendum.” Bill Cash has urged David Cameron to introduce a Referendum Bill before the General Election and preferably before the European elections in June 2014.
