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UK-EU Renegotiation: Quantitative Analysis of Immigration and Free Movement Hau-Kit Man

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Page 1: UK-EU Renegotiation: Quantitative Analysis of Immigration and … · 2016-08-29 · were rst negotiations, followed by an in-out referendum whether to stay or leave the EU. Next to

UK-EU Renegotiation: QuantitativeAnalysis of Immigration and Free

Movement

Hau-Kit Man

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II

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UK-EU Renegotiation: Quantitative Analysis ofImmigration and Free Movement

A Master of Advanced Studies (MAS) Thesissubmitted and presented by

Hau-Kit ManDr. sc. ETH Zurich, Dipl.-Ing. TU Darmstadt

Prof. Dr. Michael Ambuhl (Head of Chair)Dr. Sibylle Claudia Zurcher (Supervisor)

Department of Management, Technology and Economics (D-MTEC)ETH Zurich

2016

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IV

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Contents

Abstract 1

1. Introduction and Background 3

2. Relationship between United Kingdom and the European Union 5

3. Immigration Policy for EU citizens since 2004 93.1. Rationale by the UK government behind 2004 decision . . . . 103.2. Rationale behind 2007 decision to protect labor market . . . . 113.3. Immigration since 2004 . . . . . . . . . . . . . . . . . . . . . . 113.4. Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4. Immigration Debate in UK 174.1. Debate and Measures in the Past . . . . . . . . . . . . . . . . 174.2. Development of the Objectives . . . . . . . . . . . . . . . . . . 184.3. The Tusk Draft and Final Agreement . . . . . . . . . . . . . . 224.4. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

5. Overview of the UK Benefits System 275.1. Classification of Benefits . . . . . . . . . . . . . . . . . . . . . 28

5.1.1. National Insurance . . . . . . . . . . . . . . . . . . . . 305.1.2. Child Benefit . . . . . . . . . . . . . . . . . . . . . . . 315.1.3. Jobseeker’s Allowance . . . . . . . . . . . . . . . . . . 315.1.4. Employment and Support Allowance . . . . . . . . . . 325.1.5. Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . 32

5.2. In-Work and Out-of-Work benefits . . . . . . . . . . . . . . . 335.3. Access to UK benefits for EU citizens . . . . . . . . . . . . . . 34

5.3.1. Restrictions of benefits for EU citizens since 2013-14 . 35

6. Quantitative Analysis of the Agreement: Benefits and Tax Credits 376.1. Child Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 376.2. Jobseeker’s Allowance, Employment and Support Allowance . 446.3. Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

V

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Contents

6.4. Summary and Conclusion . . . . . . . . . . . . . . . . . . . . 59

7. Analysis of Negotiation Strategy and Outcome 617.1. Review: UK-EU Renegotiation as Two Level Game . . . . . . 617.2. Press Review: Negotiation Strategy and Outcome . . . . . . . 657.3. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

8. Adaptability to Switzerland 698.1. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698.2. Similarities and Differences between both cases . . . . . . . . 708.3. Transferability of UK argumentation . . . . . . . . . . . . . . 718.4. Known Proposals . . . . . . . . . . . . . . . . . . . . . . . . . 72

9. Summary and Conclusion 75

A. After the Referendum 77

B. Notes about Data and Statistics 79

Bibliography 81

VI

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Abstract

Following the win in the 2015 general election, the UK government under theleadership of Prime Minister David Cameron fulfilled his election promise andto renegotiation with the European Union about the terms of their member-ship within the EU. One of the four negotiation topics is the immigrationand free movement of persons which thesis will focus on. It will study thedemands made by the government, the final agreement and their negotiationstrategy. Results show that the original demands and the final deal of the UKgovernment do not make significant relief to the UK benefit budget.One aspect, which is of interest from the Swiss perspective, is the adaptab-ility of the argumentation or the renegotiation results. The Swiss FederalCouncil (Bundesrat) faces the task of implementing the popular vote MassImmigration Initiative (Masseneinwanderungsinitative) on 9 February 2014.

Keywords

Safeguard clause, UK-EU renegotiation, Brexit, Implementation of Mass Im-migration Initiative, Free movement of persons

1

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Abstract

2

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1. Introduction and Background

Over the last few years there was a political climate in United Kingdom thatcalled for an exit of their membership from the European Union. Supportersof a ”Brexit” argued that the UK would be better off leaving the EU. Onenotable example is the House of Commons debate in 2011 (Hansard (2011a)).Prime Minister David Cameron gave in to the pressure of his party membersand in January 2013 he outlined in the Bloomberg speech his support of areferendum. He pointed out several challenges the EU has to face and theneed for reforming the EU. Following the outcome of the UK general electionin May 2015, Prime Minister David Cameron fulfilled his promise outlined inthe election manifesto (The Conservative Party (2015)), he will renegotiatethe terms of their EU membership and following that a nationwide in-outreferendum. Similar to the road map of the 1974-1975 renegotiation, therewere first negotiations, followed by an in-out referendum whether to stayor leave the EU. Next to topics like sovereignty, economic governance andcompetitiveness, the immigration question was considered as one key subject.This thesis will focus the immigration issue of United Kingdom. This thesiswill focus the immigration issue of United Kingdom. In Switzerland freemovement and immigration is a recent topic due to the vote of the MassImmigration Initiative (Masseneinwanderungsinitative). This thesis has thefollowing structure:

• A short summary of the relationship between the European Union andthe United Kingdom is presented in Chapter 2.

• Chapter 3 gives an insight of the immigration policies in the UK for EUcitizens since 2004 and will show official statistics of immigration andemployment figures.

• The UK wanted to address the migration and the free movement of per-sons as part of their renegotiation. A short summary of the politicaldebate, speeches and manifestos is shown in Chapter 4. Also the devel-opment from speeches, manifestos, the letter, draft to final deal will bepresented.

3

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1. Introduction and Background

• The UK government wanted to address the free movement of workersindirectly, through access of benefits. Chapter 5 introduces the UKbenefits system in general, and the eligibility of those benefits for EUcitizens.

• A quantitative analysis of the agreement on free movement and socialbenefits are presented in Chapter 6.

• The renegotiation was followed by the press, scholars and scientists. Fewscientists identified the strategy as a two-level game. The negotiationstrategy and outcome are reviewed in Chapter 7.

• The free movement of persons is also a recent topic for Switzerland.Following the agreement on 18-19 February 2016, one question is theinfluence for Switzerland. Switzerland has to implement the popularvote on the Mass Immigration Initiative (Masseneinwanderungsinitat-ive) from 9 February 2014. This implementation requires approval fromthe European Union. What lessons can be learned from the negoti-ation. Similarities are the topic of immigration done in the negotiationand should Swiss adopt to it? Are there differences and similaritiesbetween Switzerland and the United Kingdom? What can be adopted,which point not and why? Chapter 8 will take a look into that.

• A summary and concluding remarks are made on Chapter 9.

The outcome of the 23 June 2016 vote, 51.8% voted in favor of leaving the EU,will be remembered as one key event in the United Kingdom - European Unionhistory. Appendix A is dedicated to address recent and future questions.

4

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2. Relationship between UnitedKingdom and the EuropeanUnion

The relationship between the United Kingdom and the European Union (andits predecessor) existed long before UK became a member of the then calledEEC (European Economic Community): In 1957 the Treaty of Rome, estab-lishing the EEC, was signed by six European states (West Germany, France,Italy, Belgium, The Netherlands and Luxembourg). One of the objective wasto create a common market (see Miller (2014)).United Kingdom, member of the Commonwealth of Nations, was one of the

founding member of the EFTA1 in 1959. Their efforts to become memberof the EEC was denied twice by France under the leadership by de Gaulle,in 1963 and 1967. In their third attempt to join the EEC, their applicationsucceeded and United Kingdom joined the European Economic Communityin 1973.In 1974, Harold Wilson, promised in the Labour Manifesto if his party winsthe general election he will hold renegotiations with the EEC, followed with anational referendum about the membership in the EEC. In 1975 he won thegeneral election twice, first in a coalition government, later he won the major-ity of the seats, thus giving him a mandate for the renegotiation. Unsatisfiedwith the current terms of the membership (Miller (2015)), the United King-dom wanted a treaty change in certain areas. The possibility of a withdrawalfrom the EEC was mentioned if the renegotiation are not successful and unac-ceptable in their favor during the speech by foreign secretary James Callaghan(Callaghan (1974)). Back then seven renegotiation objectives2 were renegoti-ated. Already back then the concept of the European Union was questioned in

1European Free Trade Association2Renegotiation topics in 1974-75: Changes in common agricultural policy, a fairer method

of financing the EEC budget, an agreement on capital movements which protects UKbalance of payments and full employment policies and no harmonization of the ValueAdded Tax (see more on Callaghan (1974), also on Miller (2015) and Mourlon-Druol(2015)).

5

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2. Relationship between United Kingdom and the European Union

1959 UK joins the EFTA (European Free Trade Association)1961 UK apply to join the EEC (European Economic Community)1963 EEC membership vetoed by France1967 Second application of EEC membership denied by France1969 Third and successful UK application1973 UK (together with Ireland and Denmark) join the EEC1974-75 Renegotiation and UK referendum on the EEC membership1979 Establishment of the European Monetary System (EMS) using the

European Rate Mechanism. UK did not participate.1984 Negotiation of the UK Budget Rebate during the Summit in Fon-

tainebleau1987 Single European Act1990 UK joins ERM (European Rate Mechanism)1990 Schengen treaty. UK and Ireland choose not to participate1991 Maastricht Treaty1992 UK leaves ERM1993 Single Market1999 Introduction of the EU single currency (UK, Sweden, Denmark did not

participate)2002 Introduction of the Euro2004 Ascension of ten new member states. Contrary to other member states,

UK decided not to safeguard its labor market to the new member coun-tries

2007 Ascension of EU-2 (Romania and Bulgaria). UK put transitional clausesto protect its labor market

2013 Ascension of Croatia in the EU2016 Renegotiation of the terms of UK membership within EU2016 Referendum on 23 June 2016: 51.9% voted to move out of the EU

Table 2.1.: UK history with the EU, excerpts from Miller (2014)

the statement by Callaghan. Following the renegotiation which took place inDecember 1974 and on 10-11 March 1975 (see EEC (1974) and EEC (1975))the referendum, which was the first one in UK history, was held on June 51975. 67.2% of the voters voted in favor retaining the EEC membership.Over the course of 40 years different UK governments were in charge withvarying degree of enthusiasm or commitment towards the European Union.An overview of of speeches and manifestos can be found on Kerry (2016). TheEU is the biggest trade partner for the UK with 43.7 % (£223 billion) of thetotal exports, 53.1 % (£291 billion) of the total imports. 3.3 to 3.5 millionBritish jobs are accounted with EU trade (see Webb and Keep (2016)). How-ever being one of the largest member states (by population and by net con-tribution) UK did not embrace every single measure the EU introduced, alsoenjoys several privileges within the EU: Prime Minister Margaret Thatcher

6

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23 January 2013 Bloomberg speech by Prime Minister David Cameronoutlining his plans to renegotiate Britain’s relationshipwith the European Union and to hold a referendum onEU membership

28 November 2014 Speech by PM Cameron about immigration and freemovement of workers

7 May 2015 Conservatives won general election with majority ofseats in the House of Commons

10 November 2015 Letter by PM Cameron to President of the EuropeanCouncil Donald Tusk. In this letter PM Cameron out-lines the topics for renegotiation

2 February 2016 Draft package by Donald Tusk18-19 February 2016 Renegotiation during the European Council in Brussels23 June 2016 Brexit referendum: 51.9% voted in favor of leaving the

EU

Table 2.2.: Events between 2013-2016

was able to negotiate a large portion of the payments to be refunded at thesummit at Fontainebleau 1984, the refund is also known as the Brit rebate.As one of four EU member countries United Kingdom had opt-outs3): UK didnot join Schengen, the Euro and had two additional opt-outs: Area of free-dom, security and justice and Charter of Fundamental Rights of the EuropeanUnion.

3next to United Kingdom: Denmark (4 opt-outs), Poland (one opt-out) and the Republicof Ireland (two opt outs)

7

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2. Relationship between United Kingdom and the European Union

8

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3. Immigration Policy for EUcitizens since 2004

In May 2004 10 states1 became new member of the European Union. Theexpansion went from 15 to 25 member states, including 8 states, whose territ-ories consisted of the former Warsaw Pact. The membership to the EuropeanUnion gives access to a single large market, goods and services. Also it givesEU citizens the right to move and take up work within the European Union.In the accession contract of 2003, the then 15 member states2 imposed trans-itional measures, to limit access of new member citizens to their domesticlabor market (EU (2003)). The limitations were first included in 2004, laterthis clause is retained in 2007 (Bulgaria and Romania) and 2013 (Croatia).This chapter will show how the UK government changed their policy towardnew member countries (EU-83, EU-24 and Croatia) from 2004 on.According to the contract of the ascension of the new member states, the 15member states can restrict access to their labor market for a transitional max-imum of seven year period for EU-8 and EU-2 nationals5 (see Annex II No. 2Free Movement of EU (2003), EU (2007) and EU (2012)). The duration of thetransitional clause is segmented into three phases (2+3+2 formula): the EU-15 member states are allowed to impose transitional measures for two years,then they able to extend it for further three years and the last two years can beextended and renewed only if the member state are able to provide evidenceto the European Commission that the people flow are seriously disrupting thelabor market.

1EU-10: EU-8, Cyprus and Malta2EU-15: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,

Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom3EU-8: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slov-

enia4EU-2: Bulgaria and Romania5Cyprus and Malta were exempt from the transitional clause

9

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3. Immigration Policy for EU citizens since 2004

3.1. Rationale by the UK government behind2004 decision

In 2004, 12 of the 15 member states decided to protect their labor marketfor EU-8 citizens6. Only United Kingdom, Ireland and Sweden opened theirlabor market for the new member states. United Kingdom, however, imposedrestrictions for claiming benefit: The EU-8 citizens had to register via theWorkers Registration Scheme and got no access to out-of-work benefits un-til 12 months of continuous employment (Kennedy (2011)). After then theygot the same rights and were treated like other EU/EEA7 nationals (see EU(2003)).Watt and Wintour (2015) wrote in their article, the UK government con-sidered economic upsides with immigration as reason of their decision to opentheir labor market. In 2003 scientists from University College London pub-lished an article, which was commissioned by the UK Home Office, about theeffects of immigration to the labor market. An additional increase of 5 000 to15 000 immigrants from the EU-8 countries was estimated (Dustmann et al.(2003)). This model, however was made under the assumption that each ofthe 15 member countries are not protected the labor market.In 23 February 2004 Home Secretary David Blunkett gave a statement in theparliament about opening their labor market to EU-8 citizens. He justifiedthat UK ”have more than 500 000 vacancies and they will benefit from theskills (. . . ) and willingness to work of those new migrant workers”. The mainbenefit are EU citizens are able to work legally and pay taxes, and the UKeconomy is growing since 1997. Also he noted that while they are welcome towork, they are not to claim benefits: ”UK Government’s stated policy is thataccession nationals are welcome to come to the UK to work but not to claimbenefits.” (all quotes from Hansard (2004, col23)).The main argument not limiting access for the new member citizens wasthe experience in the past back then when Portugal and Greece entered theEC: ”The disparity in comparative wage levels when Portugal and Greece, inparticular, entered the European Union was very similar to that which existsnow between employment and wage levels here and in the accession countries”(Hansard (2004, col30))).

6Cyprus and Malta already have the full free movement of persons since the beginning on7European Economic Area: includes EU states and Iceland, Norway and Lichtenstein,

Croatia is provisional member

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3.2. Rationale behind 2007 decision to protect labor market

3.2. Rationale behind 2007 decision to protectlabor market

Contrary to 2004, the government decided to restrict labor market access forBulgaria and Romania for their accession in 2007. Home Secretary John Reidgave a written statement (Hansard (2006, cols82-83WS)): ”The opening of ourlabor market will take account of the needs of our labor market, the impact ofthe A10 expansion and the positions adopted by other member states. (. . . )The UK decided to restrict access to its labor market to nationals of Bulgariaand Romania when those countries acceded to the EU on 1 January 2007”.This decision was later extended to 2011 (Hansard (2009)). The decision wasexplained with the labor market situation back then, and it was also importantfor the government to protect the interests of the resident workforce.In 2013 the same decision was made for Croatia, to protect the labor marketwith transitional clauses (Home Office (2012)).

3.3. Immigration since 2004

The following will present migration numbers since 2004, to understand whathas been changed since the EU’s expansion. United Kingdom experiencedan increasing population with an annual increase rate between 0.4% in 2002to 0.85% in 2011 (Figure 3.1). In the publication by the Office for NationalStatistics (2015b), half of them is accounted to natural change (birth minusdeath rate), the other half is due to net migration. Figure 3.2 illustrates theamount of people emigrating and immigrating from 1995-2015. Net migra-tion figures ranges from 177 000 in 2012 to 313 000 in 2014. Between 2003and 2004 there is a jump of net migration from 185 000 to 268 000. Figure 3.3shows the net migration for UK, EU and non-EU citizens: UK citizens hada negative net migration over the past year, EU and non-EU citizens havepositive net migration numbers over the last 20 years. Figure 3.4 gives themigration numbers over the last 10 years in detail. Immigration numbers forEU-148 citizens are on the rise, since 2008 immigration from EU-8 citizens arein the range between 60 000 to 80 000 and over the last years the growth ofimmigration numbers is mainly driven by people from Bulgaria and Romania,after the end of the transitional measures in 2011.

UK experienced an increase of foreigner numbers (Figure 3.5). The num-bers of EU citizens living in the UK almost tripled within 10 years from 1.1

8EU-14: EU-15 countries without United Kingdom

11

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3. Immigration Policy for EU citizens since 2004

Figure 3.1.: Population estimates in the UK from 2002 to 2013. Source:Office for National Statistics (2013).

Figure 3.2.: Immigration, emigration and net migration to the UK. Datasource: Office for National Statistics (2016b).

Figure 3.3.: Immigration to the UK by citizenship in the time span 2004-2014. Data source: Office for National Statistics (2016b).

12

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3.3. Immigration since 2004

Figure 3.4.: EU immigration to the UK, data source provided by Office forNational Statistics (2016b). In the year 2015, 51% of the total EUimmigration to the UK are accounted to EU-15, 27% to EU-8, 21%to EU-2.

Figure 3.5.: Estimation of the resident population in the UK by non-British nationality from 2004 to 2014. Data provided by Office forNational Statistics (2015a).

million in 2004 to 3 million in 2014, whereas the numbers of Non-EU citizensslightly increased, from 2 to 2.5 million. The increase of foreigners is mostlyinfluenced by the immigration of the EU-8 citizens and following their rightof free movement of workers within the EU. In 2014 1.6 million people haveeither EU-8 or EU-2 citizenship (Table 3.1). Compared to EU-8 numbers thegrowth by EU-14 citizens is less stronger, from 1.1 million to 1.4 million in2014. EU citizens (in total 4.6%) represents more than half of all foreigners(8.4% of the population) in the UK, the the ratio between EU-8 and EU-14citizens is close to 1:1, including EU-2 nations then number of EU-8 and EU-2citizens combined is larger than EU-27.

Out of the EU-8 countries, Poland represents the largest fraction of theEU-8 immigrants (see Table 3.2). Within 10 years the numbers of Polish cit-

13

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3. Immigration Policy for EU citizens since 2004

Figure 3.6.: Illustration of vacancies posted in UK and net immigrationsince 2003. Vacancies data are from Office for National Statistics(2016c), net immigration numbers are from Office for National Stat-istics (2013).

British Non-British EU-27 EU-14 EU-8 EU-2 Non-EU

58 312 (91.6%) 5 344 (8.4%) 2 938 (4.6%) 1 340 (2.1%) 1 336 (2.1%) 234 (0.4%) 2 406 (3.8%)

Table 3.1.: Estimation of the resident population in the UK by non-Britishnationality in 2014 (in thousands, in brackets: % of UK population).Data source: Office for National Statistics (2015a)

Total Population EU-14 EU-8 less Poland Poland EU-2

63 626 (100%) 1 340 (2.1%) 483 (0.8%) 853 (1.3%) 234 (0.4%)

Table 3.2.: Estimation of the resident population in the UK by EU citizensin 2014 (in thousands, in brackets: % of UK population). Data source:Office for National Statistics (2015a)

izens grew from 78 000 in 2004 to 853 000 in 2014, a net increase of 784 000(source: Office for National Statistics (2015a)). They represent 16% of theoverall non British residents and since 2014 they are the largest non Britishgroup overall, surpassing the number of Indian citizens living in UK.What are main drivers for immigration: Figure 3.6 illustrates open vacan-cies advertised and the net immigration in the UK from 2003 to 2015. Theshapes of the two curves are almost identical, raising at the question if theemployment prospects and jobs are the main pull factor for immigration andnot necessary the existing social systems or the difference of social systemsbetween member states.

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3.4. Employment

3.4. Employment

This section gives insight into the employment figures in United Kingdomover the last 10-15 years. Special interest are geared towards the statisticsof foreigners. Usually these numbers are based by their nationality on theirfirst registration for a National Insurance Number, shortened as NINo (seeAppendix B). Compared to the numbers over the last 40 years given in Officefor National Statistics (2016c), employment rates are currently at an all timehigh at over 74% (see Figure 3.7). The figure shows a dip between 2007 and2013 due to the financial crisis (also see the dip in vacancies in Figure 3.6.

The number of foreigners employed in the UK also increased in absolutenumbers (Figure 3.8). Whereas absolute employment numbers for non-EUcitizens has been slightly decreased over the last 5 years the employment forEU nationals has increased from 500 000 in 1997 to over 2 million in 2015. Thesharp increase for EU nationals over the last few years can be explained dueto the immigration of people from the new EU member states. This is alsoacknowledged by the Office for National Statistics (2016c). Employment ratesfor different nationality groups are illustrated in Figure 3.9. Figure 3.9a showsthat the employment rates of non-EU citizens are below those of the wholeUK, for EU citizens, however, their employment rates are outperforming theUK employment rates, over the last 10 years up to 5-6%. If the EU citizensare grouped into the EU-14, EU-8 and EU-2, as shown in Figure 3.9b, EU-8nationals have a higher employment rate (constantly over 80-85% employmentrate) than the EU-14 citizens, which still have a higher rate compared the thewhole UK employment rate. Even though the numbers of EU citizens areincreasing, they are integrated to the labor market. The unemployment ratein UK is currently at a low at around 5% (see Figure 3.10).

Figure 3.7.: Employment rate in the UK. Data source: Office for NationalStatistics (2016c)

15

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3. Immigration Policy for EU citizens since 2004

Figure 3.8.: Employment of foreigners, distinguished between EU and non-EU citizens. Data source Office for National Statistics (2016c).

(a) (b)

Figure 3.9.: Employment rate in the UK for non-EU, UK and EU citizens.Data source: Office for National Statistics (2016c, dataset EMP06)for UK not seasonally adjusted.

Figure 3.10.: UK unemployment rate (aged 16 and over), seasonally adjus-ted from January to March 2011 to January to March 2016 (Graphfrom Office for National Statistics (2016c))

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4. Immigration Debate in UK

The previous chapters show the immigration figures over the last years sincethe EU enlargement. While foreigner percentage are within range of com-parable EU countries like Germany or France, net migration has been on thetop of the EU member states. A report by the Office for National Statistics(2015b) projected United Kingdom will have a population of 74.3 million by2039. Over the last years immigration has been one of the main topics in UKpolitics.

4.1. Debate and Measures in the Past

The deferral of the safeguarding the labor market in 2004 was identified asmain reason for the increase of net immigration numbers. The previous La-bour government was often accused of misjudgment, that they underestimatedthe number of people coming from the Eastern Countries. Often the studyfrom Dustmann et al. (2003) was cited, that 5 000-13 000 will add to the pre-vious net migration numbers, see for instance the House of Commons Debateon 19 October 2015 about Immigration (Hansard (2015c, c248wh-249wh)).In 2007 and 2013, the UK restricted access of their labor market for the newEU member citizens (see Section 3.2), furthermore the then Conservative-Liberal-Democratic Coalition under Prime Minister Cameron announced totoughen up the rules on benefit and the access of benefits for foreigners andEEA1 nationals (Cameron (2013a)). The measures included restricted ac-cess of benefits for EEA nationals from 2013-2014 on (see Section 5.3.1) andtougher tests for residence with the purpose to make United Kingdom a lessattractive destination for EU nationals (Cameron (2014b)). One example isthe removal for Housing Benefit for EEA job seekers in 2014. In the impactassessment report, this measure is aimed to protect the UK’s benefit systemfrom migration and abuse. As key rationale this is done ”to protect the UK’sbenefit system from those who might seek to exploit it” (p.3) and this removal

1EEA: European Economic Area

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4. Immigration Debate in UK

”is part of a package of measures designed to protect the UK’s benefit sys-tem and discourage people who have no established connection or who havebroken their connection with the UK, from migrating here without a firmoffer of employment or imminent prospect of work” (p.3). The conclusion isthis measure ”will make it less easy for migrants to access the benefits systemwithout contributing through tax or social security contributions. This willlead to a reduction in welfare expenditure” (all quotes are from Departmentfor Work and Pensions (2014, p.3-5)).Cameron (2014a) identified immigration as a key topic of his renegotiationstrategy. The immigration and free movement debate is shifted towards theaccess of benefits by EU citizens, since it is not possible to negotiate freemovement of persons directly. The UK government identified the benefits asa major draw to the UK. Their system are more generous compared to mostother EU member countries (Cameron (2014b)) and ”welfare systems canprovide an unintended additional incentive for large migratory movements”(Cameron (2015c)). Therefore their intent is to restrict access of in-work,out-of-work and child benefits.

4.2. Development of the Objectives

There are a number of debates and bill readings in both chambers about im-migration over the last years2. Key arguments are the projected increase to74.3 million in 2039 (Office for National Statistics (2015b)) and existing chal-lenges to public services, transport, school, English teaching, health serviceand housing (Hansard (2013a)). Home Secretary Theresa May said citizensof former commonwealth states, who are treated as third countries when itcomes to immigration, are directly affected and get a harder hit because to theinability to control immigration of EU citizens (Hansard (2015c)). According

2as examples:Immigration (Bulgaria and Romania) 22 April 2013 (Hansard (2013a)),Immigration Bill 22 October 2013 (Hansard (2013)),Benefit Entitlement (Restriction) Bill 17 January 2014 Volume 573, Benefits (EU Na-tionals) 12 July 2011 (Hansard (2014b)),Child Benefit Entitlement (Disqualification of Non-UK EU Nationals) 22 July 2014(Hansard (2014c)),Immigration 19 October 2015 (Hansard (2015c)),Tax Credits 20 October 2015 (Hansard (2015a)),Benefit Tourism 03 November 2014 (Hansard (2014d)),Immigration Statistics 28 November 2014 (Hansard (2014e)),Europe: Renegotiation 10 November 2015 (Hansard (2015b)),UK-EU Renegotiation 03 February 2016 (Hansard (2016))

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to MP Chris Bryant migration should be controlled and be sustainable, oth-erwise local communities simply cannot cope to the strain (Hansard (2013a)).PM Cameron identified in his speeches six topics that are related to immig-ration and free movement. Two of them were later dropped: the requirementof EU job seekers to have a job offer before coming in the UK (that was lastmentioned after speech at JCB Staffordshire in 2014, see Cameron (2014b)),and the requirement of EU job seekers to leave within 6 months was droppedafter the Manifesto (The Conservative Party (2015)). Four issues made it tothe letter to Donald Tusk which is a basis for the renegotiation (Cameron(2015a)):

• free movement of persons should not be applied to future new memberstates until their economies are at a similar level compared to currentmember countries,

• the abuse of free movement and sham marriages,

• the residence status of non-EU spouses of EU citizens and

• the reduction of in-work and child benefits.

Limitation of free movement to new member countries, the abuse offree movement and the immigration of non-EU spouses

Regarding admission of new member countries to the EU, he suggested freemovement will not apply until their economies are at a similar level to exist-ing member states. He mentioned he is able to ensure that promise since EUenlargement requires unanimous agreement (Cameron (2014b)).The topic of the immigration of non-EU partners of EU citizens living in theUK. His argument are consistent between the JCB speech, Manifesto and theletter to Donald Tusk: For an EU citizen it is easier to bring a non-EU spouseto the UK than for a UK citizen. As example Cameron (2014b) mentionedthere is a language requirement and an proof of an income threshold for non-EU spouses of UK citizen. Under EU law that practice cannot be appliedto EU citizens and the those spouses have easier access to United Kingdom.He identified that as a loophole and the reason for than 4 000 sham mar-riages. He considered that as an abuse of free movement and this should bestopped. Member countries should get stronger powers to deport them andlonger reentry bans for fraudsters and those who collude include in sham mar-riages. In his letter to Tusk he mentioned regarding that issue of abuse hefound wide support from his colleagues from other countries.

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Argumentation regarding In-work Benefits

A report by the Department for Work and Pensions (2014)) identified bene-fits in general as a major pull factor. Politicians also used that argumentin parliamentary debates. The access of in-work benefits for immigrants are”non sustainable for our welfare state and for our citizens” (Hansard (2014b,col1152)), considered ”wrong for British taxpayer” by Ian Duncan Smith(Hansard (2012, col5)), and the question is raised ”can British taxpayers,with a massive budget deficit of £143.2 billion, afford to be so generous withtheir benefits payment system to everyone who tries to claim” (Anne Main,Hansard (2011b, col67WH)). Tax credits, which will be elaborated more indetail on Section 6.3, can top up wages. Based on household composition andwages, those tax credits sum be up to £10 000. MP Nicholas Soames arguedthat ”the payment of in-work benefits, such as tax credits, to low-paid work-ers contributes substantially to the financial incentive to migrate” (Hansard(2013a, col202wh)). Also a study from Department for Work and Pensions(2015b) is referred that between 37-45% of migrants, that arrived the previous4 years, are recipients of benefits. This source is often misquoted, more thanonce it was claimed by politicians that 40% of EU migrants are receiving in-work benefit. Foreign Secretary Philip Hammond called the generous benefitsan artificial pull factor, and EU migrants are not earning the wages they werepaid but on wages they expect to receive through generous in-work benefits.He identified that is a distortion to the market which is not sustainable (Houseof Lords (2016, A167)). Also the budget aspect is pointed. UK can not affordto give benefits to people coming from the EU. This is considered unsustain-able and it will collapse for the welfare state or UK citizens if this continueto add the burden (from Phillip Davies, see Hansard (2014b, col1152)).Most of the arguments are adapted and are found in Prime Minister speeches.Cameron (2014b) mentioned in the a speech at JCB Staffordhire on 28 Novem-ber 2014 that UK’s benefits system is special: The welfare system is unusualin Europe because it pays out first before paying into it. He points out thatthe British taxpayer was supporting a typical EU job seeker with £600 amonth, giving examples: ”Someone coming to the UK from elsewhere in theEU, who is employed on the minimum wage and who has two children backin their home country, will receive around £700 per month in benefits in theUK” (Cameron (2014b)). Tax credits paid in UK are more generous com-pared to other EU countries, more than twice the amount they would receivein Germany and the rates are three times more than in France, concludingthat tax credits and other welfare payments are a big financial incentive, andaccording his speech over 400 000 EU migrants benefits of them. In a debate,

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4.2. Development of the Objectives

he mentioned that (Hansard (2016, col939)) ”40% of EU migrants comingto Britain access the in-work benefits system, and the average payment perfamily is £6 000. Don’t tell me that £6 000 is not quite a major financialinducement. I think that more than 10 000 people are getting over £10 000a year, and because people get instant access to our benefits system, it is anunnatural pull and draw to our country”.Since his speech at JCB Staffordshire on 28 November 2014, he suggested thatpeople who comes to UK and wants to claim tax credits has to live and paytaxes at least 4 years. He compares the welfare system to a national club, thewelfare system is build up by the contribution of British taxpayers and it isnot right that migrants come and claim full rights (Cameron (2014b)). TheManifesto states by cutting benefits the financial incentive will be reduced tolow paid workers (The Conservative Party (2015)). In the letter to DonaldTusk he wrote he can reduce the draw from Europe to UK, by implementing afour year waiting period before people can access in-work benefits and socialhousing (Cameron (2015a), see also scheme on Figures 4.1a and 4.1b).

Argumentation regarding Child Benefits

In 2009 an article by the Telegraph reported to the general public that EUcitizens can claim Child Benefit for their children who are living in other EUstates (Lefort (2009)). Since then this has become a constant topic in theHouse of Commons. However, only few arguments can be identified: out-rage from voters of their respective constituents (Philip Davies, see Hansard(2014b)), the ”absurd anomaly (. . . ) leaving their children behind in theircountry of origin, and then British taxpayers pay child benefit to those chil-dren” (Philip Hollobone, Hansard (2014c, col1281)). However one key argu-ment against the indexation was mentioned by Steve Webb, the then Ministerof State for Department for Work and Pension, Hansard (2011b, col75-76wh)):”The courts have determined that we have to pay at the higher rate. The logicis that the entitlement is based on UK national insurance contributions, whichwill be based on UK wages and taxes. Therefore, the parallel entitlement isto a UK benefit. I understand the emotional reaction that we probably allhave when we hear that”.Possible suggestion for exporting child benefits are given from members fromthe government as well from the opposition; The then Shadow Secretary ofState for Work and Pensions, Rachel Reeves, was quoted ”to end the childbenefit and child tax credits being claimed for children living in other coun-tries” (Chorley (2016)). Liberal Democrat and Deputy Prime Minister Clegg(2014) proposed in a Financial Times article on 26 November 2014 ”to work

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with other states to stop EU migrants from claiming child benefit for childrenwho are not living here” and he suggested to pay the same rate as the countryin which those children reside.In 2014 Cameron said people should not get child benefits for children over-seas, and emphasized no matter ”how long they paid taxes and how long theyworked in the UK” (see Cameron (2014b) as well as (The Conservative Party,2015, p.30)). In the letter to Tusk Cameron stated to ”end the practice ofsending child benefit overseas” (Cameron (2015a, p.5)).

4.3. The Tusk Draft and Final Agreement

On 2 February 2015 Donald Tusk published a letter as response of the concernsraised by the UK government. Along with the letter there are six elementsof the proposal, one draft decision (EU (2016b), one draft statement (EU(2016c)), and four declarations (EU (2016d,e)) of which two of them are re-lated to immigration (EU (2016f,g)). Tusk (2016) called ”this proposal (...)a good basis for a compromise”.The demand that free movement of new countries do not apply to future newmember countries until their economies catch up, is neither mentioned in thedraft nor in the final version (EU (2016a)).

Abuse of Free Movement

The draft decision gives the interpretation of current EU rules regarding ab-use of free movement: ”In accordance with Union law, Member States areable to take action to prevent abuse of rights or fraud, such as the present-ation of forged documents, and address cases of contracting or maintainingof marriages of convenience with third country nationals for the purpose ofmaking use of free movement as a route for regularizing unlawful stay in aMember State or address cases of making use of free movement as a routefor bypassing national immigration rules applying to third country nationals”(EU (2016b, p.14), EU (2016a, p.22), the highlighted text is added in the finalversion). Other than the interpretation of current rules there are no furhterinstruments given to fight abuse of free movement.

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4.3. The Tusk Draft and Final Agreement

Non-EU spouses of EU citizens

The issue of marriages of non-EU spouses with EU citizens and their residencestatus was addressed. A proposal to complement Directive 2004/38 is planned”to exclude, from the scope of free movement rights, third country nationalswho had no prior lawful residence in a Member State before marrying a Unioncitizen or who marry a Union citizen only after the Union citizen has estab-lished residence in the host Member State. Accordingly, in such cases, thehost Member State’s immigration law will apply to the third country nation”(EU (2016g, p.2), EU (2016a, p.36)). There are no changes between the draftversion and the final version after the renegotiation.

In-work benefits

The draft decision states that social systems are not harmonized within theEuropean Union. These differences in benefits may attract certain memberstates to other member states and it is legitimate the use of measures to limitthe ”flows of workers of such a scale that they have negative effects both forthe Member States of origin and for the Member States of destination” (EU(2016b, p.12)). As result a safeguard mechanism will be provided ”with theunderstanding that it can and will be used and therefore will act as a solutionto the United Kingdom’s concerns about the exceptional inflow of workersfrom elsewhere in the European Union that it has seen over the last years”(EU (2016f, p.2), EU (2016a, p.35)). The draft declaration mentioned ”theexceptional situation” which currently exists in United Kingdom. Howeverthe exact criteria (for example net migration or number of benefit claimants)is not mentioned here.A proposal to amend EC 492/2011 on freedom of movement for workers is

planned, that there is a safeguard mechanism in place that ”to situations ofinflow of workers from other Member States of an exceptional magnitude overan extended period of time” EU (2016b, p.15)). If such a situation exists thanthe member state who wants to exercise the safeguard mechanism will notifythe Commission and the Council. After examination by the Commissionthe Council will authorize the member state to restrict access to in-workbenefits. The people newly entering the labor market will have limited accessfor four years from starting employment. According to the draft decision thelimitation should be graduated, in the beginning the workers are completelyexcluded but the access to such benefits will be gradually increased over time,to take account of the integration of the worker into the host labor market.In the draft the duration of the safeguard clause is not specified: ”limited

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(a)

(b)

(c)

Figure 4.1.: In-work benefits. Figure 4.1a shows the current situation thatmigrants are immediately eligible for in-work benefit (Working TaxCredit). Dashed line signals that for Child Tax Credit, there is a3 month residence requirement in the UK. Figure 4.1b illustratesCameron’s proposal, that workers have to live here for 4 years be-fore claiming in-work benefit. Figure 4.1c shows the final agreementbetween EU and UK.

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4.4. Summary

duration and apply to EU workers newly entering its labor market during aperiod of [X] years, extendable for two successive periods of [Y] years and [Z]years” (EU (2016b, p.15)).In the final agreement of 19 February it is specified that the duration is 7 yearsthat is not extendable. And a clarification the in-work benefits are relatedto the ”non-contributory” part. In the declaration the passage is added:”in particular as it has not made full use of the transitional periods on freemovement of workers which were provided for in recent Accession Acts, showsthe type of exceptional situation that the proposed safeguard mechanism isintended to cover exists in the United Kingdom today” (EU (2016a, p.35)),highlighting UK opened the labor market in for EU-8 citizens.

Child Benefit

Their original demand is to stop sending child benefits to children living inother member states. The draft decision states an amendment of EC 883/2004is planned to allow indexing child benefits for children living in a differentcountry. That allows the member country to pay the rate where the childrenlive.In the final version of the decision following aspects are added: the indexationof those benefits is only applied to new proposals. From 2020 member statescan index existing child benefit claims. Furthermore there are no plans toextend that practice for pensions.

4.4. Summary

This chapter shows that the immigration topic has become an issue in the UKpolitics. Cameron pointed out several topics as part of the renegotiation. Onetopic is not mentioned in the final conclusion of the European Summit on 19February: the topic of free movement of future member states. Regarding theabuse of free movement the decision gave an interpretation of current rules,that member states are currently able to take action against it. The issue ofnon-EU spouses of EU citizens has been addressed. In that case national lawwill be applied to spouses who have no prior residence in the EU. The originalclaim of the four year waiting period for immigrants is changed. A safeguardwill be provided in case of an exceptional inflow of persons coming from othermember states. The duration of the safeguard will be 7 years, and the 4 yearperiod will be applied for workers starting employment, from an exclusion in

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the beginning to full integration of non-contributory in-work benefits after 4years. Child benefit will be indexed for new claims only, from 2020 memberstates can index existing claims as well.

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5. Overview of the UK BenefitsSystem

Before a review and a assessment of the agreement is made, this chapter givesan introduction to the UK benefit system. Benefits in the United Kingdom areadministered by two institutions: The HMRS (Her Majesty Revenue Service)and the DWP (Department of Work and Pensions).

Her Majesty Revenue Service

The HMRS is a non-ministerial government department for the UK govern-ment, headed by the Exchequer Secretary to the Treasury and Minister re-sponsible for HMRC. Their primary function in the UK is

• to collect direct and indirect taxes: income, corporate tax, VAT, stampduties and

• to collect and administer National Insurance Contributions.

Also in their responsibilities is to distribute benefits and tax credits:

• Tax Credits (Child Tax and Working Tax) and

• Child Benefits.

The total revenue through taxes and National Insurance contributions in 2015is accounted to £517 billion. 21% of the revenues (£108 billion) are fromNational Insurance contributions (see HM Revenue and Customs (2015)).

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5. Overview of the UK Benefits System

Department of Work and Pensions

The DWP1 falls under the jurisdiction by the Secretary of State for Workand Pensions. According to the annual report they are biggest public servicedepartment (Department for Work and Pensions (2015a)). Their primarytask is to be responsible for welfare, pensions and child maintenance policyand services. More precisely it administers the State Pension, the adminis-tration of benefits to over 22 million claimants. They are responsible for theadministration and distribution of benefits like

• State Pensions,

• Employment and Support Allowance,

• Universal Credit,

• Jobseeker’s Allowance,

• Bereavement Benefits and

• Housing Benefits.

According to their annual report, the budget for 2014-2015 is £167.6 billion(Department for Work and Pensions (2015a)). The majority of them is paidout for pensioners (see Figure 5.1).

5.1. Classification of Benefits

The UK benefits system can be distinguished in three different categories:

• Income-Related: if an individual is below a certain income or evensavings threshold, they are entitled to income-related benefits.

• Contribution based: if an individual has made contribution over aperiod of time through National Insurance, they are entitled to contri-bution based benefits.

• Non-Contribution and Non-Income-Related: individuals are eli-gible to these benefits if they fall on certain conditions, for instancehaving children or caring for elderly people.

1for Northern Ireland: Department for Communities.In Northern Ireland social security, child support and pensions are devolved from thegovernment, therefore there is a different structure, in principle in terms of benefits theyare aligned with Westminster

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5.1. Classification of Benefits

Figure 5.1.: Spending on benefits 2014-2015 by the DWP (from Depart-ment for Work and Pensions (2015a)

More detail is shown in Table 5.1. Several benefits have two components, aincome-related and a contribution-based component. Examples of them areJobseeker’s Allowance, which is an unemployment benefit, and the Employ-ment and Support Allowance.

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Contributory Retirement pensionsBereavement BenefitsIncapacity BenefitMaternity Allowance & Guardians Allowance

Income-Related Pension CreditIncome SupportHousing Benefit, Rate Relief

Contributory & Income-Related Jobseeker’s AllowanceEmployment and Support Allowance

Non-Contributory & Non-Income-Related Child BenefitCarers AllowanceAttendance Allowance

Table 5.1.: Classification of benefits under DWP in their publications (HerMajesty Government (2015b))

5.1.1. National Insurance

In the UK each individual over 16 and living in the UK has to register foran National Insurance Number (known as NINo). Immigrants moving to theUK also have to register for the NINo, once they take up work or apply forbenefits. It is an insurance-based system, where workers and employers paycontribution to the individual national insurance account. In this model theindividual and the company pay a fraction of the wages, it usually will bededucted directly from the salary. Everyone with a salary above a certainthreshold2 is obligated to pay into the account (Her Majesty Government(2016a)). The payments to the National Insurance gives them access to3:

• State Pension,

• Contribution-based Jobseeker’s Allowance,

• Contribution-based Employment and Support Allowance,

• Maternity Allowance and

• Bereavement benefits.

2The salary threshold is set to £155 a week as an employee, as a self employed with asalary of £5 965 a year. Also voluntary contributions to its own individual account ispossible.

3There are some restrictions: Self employed (Class 2) are not eligible for contributionbased Jobseeker’s Allowance), voluntary contributions (Class 3) are not eligible forcontribution-based Jobseeker’s Allowance, Employment and Support Allowance andMaternity Allowance.

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5.1. Classification of Benefits

5.1.2. Child Benefit

Child benefit is a benefit paid to a parent responsible for one or more children.To be eligible, parents have one or more children under 16 or under 20 ineducation or approved training (Her Majesty Government (2016e)). Weeklyrates are £13.70 for one child and £20.70 for each additional child. Immigrantscan claim child benefit after 3 months of residency4 (Kennedy (2015a)). Otherthan that there are no restrictions for EU nationals. Child benefits can bepaid to parents residing in the UK and the child is living in another memberstate. This is regulated in the EC 883/2004 (EU (2004)). This practice ispart of the renegotiation between United Kingdom and the European Union.

5.1.3. Jobseeker’s Allowance

Jobseeker’s Allowance is a benefit paid for job seekers. Individuals are eligibleeither when they are unemployed and looking for work or when they are inemployment and registered at the JobCentre5 looking for work. In the lattercase, few conditions has to be met. This benefit has a cap, depending on theage of the claimant. Between age 18 to 24 the claimant can receive up to£57.90, from age 25 or over up to £73.10 and adult couples up to £114.85.This allowance has a contribution and an income-related component. Toqualify for the contribution-based Jobseeker’s Allowance, job seekers have topay enough National Insurance Contributions as employee6 over the last 2tax years. For income-based Jobseeker’s Allowance certain conditions to bemet (see Her Majesty Government (2016b)): less than 16 hours per week onaverage (partner less than 24 hours) and savings below £16 000. In additionone of the conditions has to be met: earnings less than £153 per week onaverage during employment over the last 2 years or claiming contribution-based Jobseeker’s Allowance for over 182 days or not working over the last 2years.

4There are exception that are mentioned in Her Majesty Government (2016f)5JobCentre is a government agency who aims at people looking for employment.6Class 1

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5. Overview of the UK Benefits System

5.1.4. Employment and Support Allowance

Employment and Support Allowance is a support for individuals who are sickand the ability to work is affected by their disability. The support can beeither financially based or work-related. Individuals between age 16-64 canapply for this benefit if they are employed, self-employed or unemployed, andnot getting other benefits like State Pension, Statutory Sick Pay or MaternityPay (Her Majesty Government (2016c)). A work capability assessment whichdecides the claimant to be put on support group or not7 is the main conditionto be eligible for this benefit. This benefit has a contribution and an incomerelated component. To be eligible for the Contribution-based Employmentand Support Allowance is to pay sufficient contribution through NationalInsurance over the last 2-3 tax years and a health assessment (Her MajestyGovernment (2016c)). There is no time limit for benefit if the beneficiaryis assigned into support group, for people who is assigned into job groupthey can claim the benefit for a maximum of one year. Individuals qualifyfor Income-based Employment and Support Allowance, if they are no longereligible for contribution based Employment and Support Allowance. In thatcase there is no time limit.

5.1.5. Tax Credits

Tax Credits are administered by the HMRC. Unlike the name suggests theseare not credits directly counted against the tax rate (i.e. tax reduction), how-ever these are direct payments from the HMRC to the families or households.According to HM Revenue and Customs (2016, p. 2):

”Tax credits are a flexible system of financial support designed todeliver support as and when a family needs it, tailored to their spe-cific circumstances. They are part of wider government policy toprovide support to parents returning to work, reduce child povertyand increase financial support for all families. The flexibility ofthe design of the system means that as families’ circumstanceschange, so (daily) entitlement to tax credits changes. This meanstax credits can respond quickly to families’ changing circumstancesproviding support to those that need them most”.

7That is important for the duration and the amount of the benefit.

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5.2. In-Work and Out-of-Work benefits

The calculation of the Tax Credit is based on a system which criteria likefamily, children, income are taken into account. There are two types of TaxCredits: Child Tax Credit and Working Tax Credit.

Child Tax Credit

Child Tax Credit is a benefit paid to households if they are responsible forchildren. To be eligible for this Tax Credit (Her Majesty Government (2016d))individuals have to be responsible for a child who are either under 16 or under20 and in training or education. Children do not need to live in UK butare financially dependent on you. This also regulated in EC 884/2004 (EU(2004)). The payment does not affect Child benefit. Like for Child Benefitfor EU nationals there is a three months waiting period after entering UK.

Working Tax Credit

Working Tax Credit is paid to households, who have an income below a certainthreshold. To be eligible for Working Tax Credit following conditions apply(Her Majesty Government (2016d)): age between 16 and 24 and have a childor a qualifying disability or age 25 or over. They must work a certain numberof hours a week, get paid and have an income below a certain level.

5.2. In-Work and Out-of-Work benefits

The classification which of the benefits are classified as in-work or out-of-workare not clear. In-work benefits do not necessary require that claimants shouldbe on work while getting benefit and vice versa. One example is the outof work benefit: Jobseeker’s Allowance, which is considered an out-of-workbenefit, is also available for people who are in work. Even the departmentsdoes not draw a clear line which is considered in-work or out-of-work. Thefollowing classification is used according to Her Majesty Government (2014)and shown in Table 5.2.

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5. Overview of the UK Benefits System

In-Work Benefit Child Tax CreditWorking Tax CreditChild Benefit

Out-of-Work Benefit Jobseeker’s AllowanceEmployment and Support AllowanceIncome SupportHousing Benefit

Table 5.2.: In-work and Out-of-work benefits (Her Majesty Government(2014))

5.3. Access to UK benefits for EU citizens

EU citizens who have the right to reside in the United Kingdom may be ableto get those benefits8(see NIDirect (2016b) and Kennedy (2015c)):

• Pension Credit,

• Income Support,

• Income-based Jobseeker’s Allowance,

• Housing Benefit/Rate Relief,

• Disability Living Allowance,

• Attendance Allowance,

• Carers Allowance,

• Income-related Employment and Support Allowance,

• Tax Credits and

• Child Benefit (after 3 months in UK).

EU nationals are able to get Jobseeker’s Allowance, after living at least 3months in the UK (or Ireland) before the claim. For EU citizens, who alreadypaid insurance-based unemployment insurance in an EU member country,they can transfer their claim to the UK under the regulation EC 987/2009(EU (2009)). In that case the Department for Work and Pensions will payout contribution-based JSA to the individual, at the same time they send an

8The National Health Service is in the UK non-contributory

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5.3. Access to UK benefits for EU citizens

invoice to the member country. where EU citizen paid his insurance contribu-tion. Contributions paid in another member state can be taken into accountunder EC Regulation 1408/71.EU nationals can qualify for non-means tested and contributory benefits (e.g.Statutory Sick Pay, Maternity Pay, Maternity Allowance and Disability Liv-ing Allowance or Attendance Allowance) in the same way as UK nationals(Kennedy (2015c)). Croatian citizens get same status as EU citizens after 12months of continuous employment (Home Office (2012)).

5.3.1. Restrictions of benefits for EU citizens since 2013-14

In 2013-2014 the UK government decided to put restrictions on benefits formigrants: Cameron (2013a) announced those measures that are introducedto tighten up rules, ensuring immigrants coming to the UK are not takingadvantage of the UK benefits system (see Department for Work and Pensions(2014)). The list of measures and a detailed view can be found on Kennedy(2015a) and Kennedy (2015b). The measures are

• a ”stronger, more robust” Habitual Residence Test,

• no income-based Jobseeker’s Allowance for those, who have been in theUK for less than three months,

• no income-based Jobseeker’s Allowance for EEA migrants after six monthsunless they have a ”genuine prospect of work”,

• a minimum earnings threshold to help determine whether work is ”genu-ine and effective” and

• EU job seekers are ineligible for Housing Benefit.

35

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5. Overview of the UK Benefits System

36

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6. Quantitative Analysis of theAgreement: Benefits and TaxCredits

One of the key arguments of reducing access of benefits is the strain it putsinto the UK budget1. One report says cutting benefit for foreigners will leadto a reduction in welfare expenditure (Department for Work and Pensions(2014)). The question is if the original proposal and the final agreement willreduce the budget significantly. This chapter will investigate the effect of UKproposal the final agreement. It will take a look into Child Benefit claims thatwere sent to children overseas, the income-based allowances and finally thetax credits. For allowances and tax credits few notes has to be noted aboutdata accuracy which will be discussed in Appendix B. In total this thesis willstudy benefits with an annual expenditure of £45.6 billion (approximately23% of overall benefits paid in 2015).

6.1. Child Benefit

According to Office for National Statistics (2016a), a total of 7.9 million childbenefit claims were paid, 990 000 claims was being awarded to persons, whohave a non-UK citizenship at the time they registered for a National InsuranceNumber (NINo) (Keen and Turner (2016)). The regulation EC 883/2004regulates the child benefit to EU citizens,

(a) who are eligible for child benefit and

(b) whose children are living outside the country where the parents live.

1See debate on Benefit EU nationals 12 July 2011Benefit tourism on 12 September 2012Benefit Entitlement Restriction Bill 17 January 2014

37

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

Child Benefit 12 086

Employment and Support Allowancecontributory (not investigated here) 4 101income-based 8 726

Jobseeker’s Allowancecontributory (not investigated here) 369income-based 2 696

Tax Credits (2013-2014) 29 700

Total benefit investigated in this thesis 45 592

Total benefit expenditure (DWP&HRMC) 197 851Total contributory benefits 94 547Total income-related benefits 45 706Total non contributory and non income-related benefits 27 898

Table 6.1.: Benefit outturn for 2014-2015 in million £. Source: Depart-ment for Work and Pensions (2015b), Keen and Turner (2016) andTable 6.6

Figure 6.1.: The number of families and children in receipt of child benefitin United Kingdom, from 2003 to 2015 based on the data given byOffice for National Statistics (2016a).

38

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6.1. Child Benefit

Figure 6.2.: The number of EU families with children not residing in theUK in receipt of UK Child Benefit and the largest group (Polishnationals), from 2009 to 2015 based on the data given by Keen andTurner (2016)

Poland, as example, accounted over two thirds of child benefit awards underthe EC regulation. It has a lower child benefit rate compared to the UK2 (seeMISSOC (2016)).In publications given by Office for National Statistics (2016a) (see Figure 6.1)

the general number of claims granted to all families and children has been de-creased since 2012, which contrasts to the increase of the overall populationwithin the UK. Before 2012, the number of claims granted was growing con-tinuously. Even though the population numbers are increasing shows thatthe number of claims overall has been stagnated or even decreased. The num-ber of awards given in 2015 dropped close to the level of 2007, the numberof children benefiting from child benefit are below of 2003 (before ascensionof EU-8). Figure 6.2 gives the number of child benefit awards given to EUfamilies under EC Regulation 883/2004. Similar to Figure 6.1, it shows a de-creasing trend: for the whole EU as well as for single nationalities, as exampleshown for Poland, who represents the largest fraction.The claims by the UK government are elaborated in more detail from Tables 6.2to 6.6. Based on accessible data given by Keen and Turner (2016) and Officefor National Statistics (2016b) a quantitative study is done based on data setsfrom 2013. Table 6.2 calculates the overall expenditure to all EU nationalsin the UK, whose children are not residing in the UK. The calculations done

2Poland (per month): age below 5: PLN 77 (£15), age 5-18: PLN 106 (£20), age 18-24:PLN 115 (£21)

7Numbers based on August 2013 from Office for National Statistics (2016a)8Numbers based on August 2013 from Office for National Statistics (2016a)9Calculations based on the numbers given in Office for National Statistics (2016a)

10Calculations from Table 6.3 scaled to 100% (from 95%)

39

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

Children residence Number of awards Number of children Payment £

Austria 23 37 34 730Belgium 75 140 127 036Bulgaria 186 245 242 242Croatia na na naCyprus 39 61 57 652Czech Republic 124 203 189 753Denmark 13 23 21 117Estonia 45 65 62 686Finland 12 23 20 753France 789 1 429 1 305 215Germany 283 495 455 650Greece 44 69 65 171Hungary 136 196 189 134Iceland na na naItaly 156 273 251 269Latvia 797 1 091 1 067 336Liechtenstein 0 0 0Lithuania 1 215 1 712 1 661 888Luxembourg 7 14 12 521Malta 15 22 21 132Norway 30 61 54 376Poland 13 174 22 093 20 534 389Portugal 202 309 293 659Republic of Ireland 1 231 2 505 2 232 646Romania 230 392 362 980Slovakia 692 1 232 1 129 564Slovenia 11 21 18 964Spain 600 1 019 944 335Sweden 49 95 85 514Switzerland 77 150 134 888The Netherlands 142 288 256 859

Total 20 400 34 268 31 833 469

Table 6.2.: Child Benefit awards under EC Regulation 883/2004 in respectof children living in another EEA member state. Data source: arefrom Keen and Turner (2016, p.18). Note: Dataset from August 2013is used

40

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6.1. Child Benefit

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41

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

UK Rates Domestic Rates DifferenceCountry of child residence Annual payment (£) Annual payment (£)

EU-14, top 5 5 231 506 4 670 393 561 113EU-8, top 5 24 756 160 5 751 170 19 004 989

Table 6.4.: Table 6.3 differentiated into EU-8 and EU14

Number awards Number children

EU-14 3 626 (17.77%) 6 719 (19.61%)EU-10+EU-2+Croatia 16 664 (81.69%) 27 335 (79.77%)EEA+CH 110 (0.54%) 214 (0.62%)

Total 20 400 (100%) 34 268 (100%)

Table 6.5.: The number of families and children in receipt of Child Benefit,broken down in different categories using data from August 2013 givenby Keen and Turner (2016) (table 5).

are based on the UK child benefit rates: for first child £20.70, for subsequentchildren £13.70. Table 6.3 shows, how much they would receive, if rates basedon the children residence are used. The calculations are made for 10 nationswhich have the highest number of recipients (out of the 30 given EU and EEAcountries in Keen and Turner (2016)). However since these 10 EU countriesare accounted of 95 percent of overall claims awarded, it is a good approxim-ation. The domestic rates for all EU countries are from MISSOC (2016).Table 6.3 shows the overall potential reduction for the 10 countries using in-dexation can be substantial. Instead of paying approximately £31 833 469,payments can be reduced to £10 421 563, it can be reduced to around onethird. For few countries there are large savings, e.g. France which grantschild support only from the second child on or Poland due to scale effects thepotential savings can sum up to £15 642 937. Few countries, however, havehigher rates, for example the Republic of Ireland and Germany.Table 6.4 gives a different illustration of Table 6.3, the 10 countries are sep-arated into EU-8 and EU-14 countries. For EU-14 countries, the potentialsavings can be considered negligible (totaling only around £561 113 in po-tential savings), for EU-8 countries the difference is substantial. Here thepotential savings are £19 004 989. The savings itself can be substantial, how-ever, relative to the overall child benefit payments of over £12 billion for allUK citizens, it is only a small fraction. If the proposed new law for childbenefit in Poland is considered (see article by Day and Foster (2016)) thesavings the UK proposes may be further reduced. The Polish governmentproposes an child benefit of 500 Zloty (approx. £92.49 as of 13. April 2016)

42

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6.1. Child Benefit

Families with EU Citizenship with children not living in UK 20 400Total Number Families overall with granted child benefit7 7 550 265Total percentage 0.27%

Child benefit for children not living in UK 34 268Number Children overall granted child benefit8 13 107 460Total percentage 0.26%

Payment to EU families whose children are not living in UK £31 833 469Total Payments of families residing in UK 9 £12 086 050 964Total percentage 0.26%

Payment to EU families whose children are not living in UK (usinglocal rates)10

£11 064 415

Total Payments of families residing in UK adjusted local rates £12 065 281 910Total percentage 0.09%

Table 6.6.: Comparison (ratio) child benefit awarded to all UK residentscompared to UK residents under EC regulation 883/2004 EU (2004).Numbers are based on August 2013 from Office for National Statistics(2016a) and on December 2013 from Keen and Turner (2016), calcu-lated from Table 6.3.

from the second born child on. In this scenario the overall potential paymentsfor Polish families increases from £4 891 451 to £10 748 206. The potentialsavings then will be smaller: from £19 566 103 to £13 709 348.Table 6.5 shows the distribution of the grants dependent of category, for a fullbreakdown of citizenship it is shown in Keen and Turner (2016) for August2013. Even though Table 3.1 in Section 3.3 shows that the number of EU-8+EU-2 and EU-14 citizens have the same ratio. Almost 80 % of total childbenefit awards under EC 883/2004 are awarded to EU-8 citizens.Table 6.6 shows that the numbers of granted payments and numbers of fam-ilies. The payments outside UK are around £31 million. The overall childbenefit grants are at £12 billion. Percentage wise the payments are at 0.27%.The potential saving s however by using local rates where the children resideswill reduce to 0.09% of overall child benefit payments, which would be thecase from 2020 on. In comparison, in Germany the payments are also below1% (0.58% as of 2013) of overall child benefit payments, see the report fromBundeszentralamt fur Steuern (2013).

43

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

6.2. Jobseeker’s Allowance, Employment andSupport Allowance

The benefits investigated in this section usually are considered as out-of-workbenefits. The decision to include it in the analysis is the following: both havein-work components, people can get those benefits while working and also itis based on a certain income threshold, and it is important to note only theincome-based component is considered here.Based on available data sets from ONS and HRMC it will be determined howmany migrants are affected by the plan and how much the potential reductionswill be. This section the allowances (Jobseeker’s Allowance (JSA) and Em-ployment and Support Allowances (ESA)) are studied. Several benefit typesare not studied, for example Housing Benefit (annual expenditure 2012/13:£23.892 billion) and Income Support (annual expenditure 2012/13: £5.309billion, source: Her Majesty Government (2015b)). In both cases the lack ofdata is the main reason.

Calculation

The general idea is to study from existing and published data from the past,how many individuals from the EU are affected by the proposal and agree-ment. How much the relief would be compared to the overall spending. Alsoonly income-based part of the benefit is considered here. For Jobseeker’s Al-lowance and Employment and Support Allowance following steps were taken:

1. Literature and publication study (for example from the Office for Na-tional Statistics), how many EU citizens are claiming benefits (income-based Jobseeker’s Allowance and Employment and Support Allowance).The relevant data is shown in Table 6.7.

2. Identification the number of EU citizens are living in the United King-dom. The main data are from publications from the Office for NationalStatistics (2015a).

3. As next step the number of EU citizens moving into the UK over a timespan of four years11 has to be estimated. From the data given in Officefor National Statistics (2016d) during the time span of 2011 and 2014,

11Net immigration numbers are not used here, since in this case an estimation is madehow many people are not eligible from the benefit. Using net immigration numbers willresult in a underestimation.

44

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6.2. Jobseeker’s Allowance, Employment and Support Allowance

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45

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

All Citizenships UK citizen EU citizen non-EU citizen

2011 566 000 78 000 174 000 314 0002012 498 000 80 000 158 000 260 0002013 526 000 76 000 201 000 248 0002014 632 000 81 000 264 000 287 000

total 2011-2014 2 212 000 315 000 797 000 1 109 000

Table 6.8.: Migration numbers into UK from 2011-2014, by nationality.Data source: Office for National Statistics (2016d). Note: It is notclear from the data given, if EEA/EFTA nationals are counted towardsnon-UK/non-EU category or not. Since this is a small number theeffect can be negligible

Working age migrants with UK citizenship 204 750Working age migrants with EU citizenship 518 050Working age migrants with non-UK/non EU citizenship 720 850

Total Number of working age migrants 2011-2014 1 443 650

Table 6.9.: Estimation of working age migrants immigrating into UK from2011-2014, by nationality, based on the data given in Table 6.8 andOffice for National Statistics (2016d).

Working age population with UK citizenship 37 028 120Working age population with EU citizenship 1 865 630Working age population with non-UK/non EU citizenship 1 527 810

Total Number of working age population in UK

Table 6.10.: Estimation of working age population in UK, based on thedata given in Table 3.1 and Office for National Statistics (2015a).

46

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6.2. Jobseeker’s Allowance, Employment and Support Allowance

2 222 000 persons moved into United Kingdom, 797 000 of them are EUcitizens (see Table 6.8).

4. The next step involves the number of the workforce, the identifica-tion of the working age population (age 16-64) in the UK. In mid-201464 596 356 are living in the UK, of them 41 036 530 persons are at work-ing age (Office for National Statistics (2015b)). The working age ratiocan be calculated as follows:

working age ratio =working age population in UK

total population in UK=

41 036 530

64 596 356= 0.635

(6.1)

5. An assumption is made: Equation (6.1) can be applied to EU citizensliving in the UK and to EU citizens moving to the UK. To estimatethe working age numbers who have EU citizenship, the number of EUcitizens living in the UK (from Table 3.1) and the numbers EU cit-izens moving to the UK (from Table 6.8) will be multiplied with Equa-tion (6.1). The result is: 1 865 630 EU citizens living in the UK are inworking age, and 720 850 EU migrants who move during the time span2011-2014 are in working age as well (Tables 6.9 and 6.10).

6. As next step is the calculation how many EU citizens are still eligiblefor Jobseeker’s Allowance and Employment and Support Allowance ac-cording to the original UK proposal. This is described by the followingequation:

r =i− j

i(6.2)

with

• r: fraction of EU citizens who are living in the UK, in working ageand living more than 4 years in the UK,

• i: number of working age EU citizens living in the UK (1 865 630),

• j: number of working age EU citizens moving to the UK duringthe time span 2011-2014 (720 850)12 .

12For non-EU citizen Equation (6.2) would be a bit different. Since the non-UK, non-EU citizens are barred from any benefits in the first 2 years (NIDirect (2016a)) theparameter i and j are

– i: Number of working age non-EU citizen living in the UK

– j: Number of working age non-EU citizen migrating from 2011-2012

47

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

7. Using r from Equation (6.2) to recalculate the numbers given in Table 6.7.The absolute number of EU citizens, who are affected by the four yearperiod, and also the potential benefit reduction can now be identified.

For the calculation of the benefit several assumptions has to be made. Byusing the factor calculated the assumption is made that people aged 16-64 areequally distributed: EU citizens living 5 years in the UK have same probabilityof getting benefit with people living for 15 or more years. Another assumptionis taken regarding nationality. We assume that the nationality remains thesame, assuming there is no naturalization and the people moving to the UKdo not leave UK within the first four years.

Results

The results of the recalculation are shown from Tables 6.11 to 6.1313. 10 315EU citizens who claims Jobseeker’s Allowance (compared 38 020 claimants asEU citizens and 758 000 claimants in the UK) and 11 997 persons who claimfor Employment and Support Allowance are affected with this proposal (com-pared 44 020 EU claimants and 2.5 million claimants in the UK) are affectedby this ban (Table 6.11). The potential monetary reduction is calculatedat £35.3 million14 and £41.428 million15 (Table 6.13). In case of a gradualincrease, which was agreed on 19 February, the potential savings would be£18.84 million and £21.611 million16.In both cases, however the savings are minimal compared to the overall ex-penditure of both allowances £2.696 billion and £8.726 billion, noting that

13Croatian national, who are excluded for the first 12 months from benefits, are not included14for Jobseeker’s Allowance:

Total expenditure (Table 6.1): £2.696 bnPercentage claimants EU citizens: 4.8%Total expenditure to EU citizens: £129.408 mioMultiplying total expenditure with (1 − r): £35.3 mio.

15for Employment and Support Allowance:Total expenditure (Table 6.1): £8.726 bnPercentage claimants EU citizens: 1.7%Total expenditure to EU citizens: £148.423 mioMultiplying total expenditure with (1 − r): £41.128 mio.

16Equation (6.2) has to be modified: j has to be weighted and will be calculated assuming1st year working age migrants (2014: 264 000 · 0.635) gets 0-25% (on average 12.5%) oftheir maximum benefit, 2nd year (2013: 201 000 · 0.635) 25-50% (37.5%) of the benefit,3rd year (2012: 158 000 · 0.635) 50-75% (62.5%) of the benefit and 4th year (2011:174 000 · 0.635) 75-100% (82.5%) of the benefit: j = 0.635 · (174 000 · 0.125 + 158 000 ·0.375 + 201 000 · 0.625 + 264 000 · 0.875), resulting in r = (1 − 0.1466) = 0.8544.

48

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6.2. Jobseeker’s Allowance, Employment and Support Allowance

from Keen andTurner (2016)

corrected basedon UK proposal

number ofpeople excludedfrom allowances

EU nationals on JSA 38 020 27 705 10 315EU nationals on ESA 44 220 32 223 11 997

Table 6.11.: Number of EU migrants excluded from benefits

the number to claimants holding EU citizenship are not considered out ofproportion.

49

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

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50

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6.2. Jobseeker’s Allowance, Employment and Support Allowance

Tot

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51

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

6.3. Tax Credits

The annual expenses for tax credits, £29.07 billion, are significantly higherthan child benefit and the allowances covered before. Like in the previous sec-tion this section will identify the numbers of EU foreigners that are affectedby the original UK proposal and the final agreement. The methodology isa bit different compared to the allowances, since tax credits are not awar-ded to individuals (like in case of Jobseeker’s Allowance), but to households.Table 6.14 shows the numbers of families receiving Child Tax and WorkingTax Credit, differentiated by UK, EU and non-UK nationals. The study ofsingles and couples has be done separately. For couples exact numbers cannotbe calculated. The reasons are

• the lack of accurate statistics about foreign households and transnationalhouseholds,

• if one partner in a household is a UK national, the other one is a EUnational, Table 6.14 will count the household as non-UK and

• also it is not known, how they assign and count households with non-UKand EU partners.

Consequently only single household can be calculated here.

The approach presented here is

1. to identify number of single household affected by the proposal and

2. how much the potential reduction to the budget will be.

There are a number of assumptions for analyzing the available data:

1. An assumption is made that the household structure of EU foreignersare identical to the 2011 census.

2. The EU citizens moving to the UK have the same have the same house-hold structure as to the 2011 census.

3. The marital status of the EU citizens do not change.

4. The EU citizens moving to the UK do not leave within 4 years.

5. EU citizens do not change their nationality to UK citizenship (to addressthat the registration at NINo is correct).

Following steps are taken:

52

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6.3. Tax Credits

Tota

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53

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

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54

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6.3. Tax Credits

EU citizen, one person household under 65 521 525EU citizen, lone parent with dependent children 210 829EU citizen, lone parent without dependent children 102 486

Table 6.16.: Estimation of one person household and single parents hold-ing EU nationality and living in the UK

1. Estimation/Identification of single household composition in workingage (16-64) population. The single household can be either single orlone parent. The numbers are from 2011 UK census and relevant dataof it are shown in Table 6.1517 (Office for National Statistics (2011)).

2. Estimation number of EU citizens living in the UK as single households.

3. Estimation number of EU citizens moving in the time span 2011-2014as single households.

4. Estimation number of persons ineligible from tax credits18 due to UKproposal and the final agreement.

5. Recalculation parts of Table 6.14, and estimation of number of house-hold affected by UK proposal and estimation of potential savings.

Single Households Composition in the UK The number of householdsand the composition are from the 2011 census (Office for National Statistics(2011)). The 2011 census gives the UK household composition for singles(Table 6.15):

• one person household: 17.8%

• lone parent with dependent children: 7.2%

• lone parent without dependent children: 3.5%

2.938 million EU nationals are living in the UK (see Table 3.1). Using the datafrom Table 6.15 leads to the numbers of EU citizens in Table 6.16. Numberof single households immigrating in the UK (also same with single householdin UK as EU citizens) can be calculated simply by multiplying the number ofimmigrants (of EU nationals living in the UK) with the percentage:

17The statistics are for England and Wales only. Since relative numbers (percentages) areused, one can assume that there are no significant differences exist for Northern Irelandand Scotland.

18For Child Tax Credit, foreigners are eligible after 3 months of residence, whereas forWorking Tax Credit foreign workers are eligible immediately, see Chapter 5.

55

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

Numbersinglehouseholdimmig-ration2011-2014(out of797 000)

eligible forCTC

eligible forCTC+WTC

eligible forWTC (nochildren)

Single household 141 886 - - 141 886Lone parent with de-pendent children

57 384 52 632 52 632 -57 384

-

Lone parent withoutdependent children

27 895 - - 27 895

Table 6.17.: CTC: Child Tax Credit, WTC: Working Tax Credit. Note:the first 3 months after moving to the UK they are ineligible forclaiming Child Tax Credit. This is considered here.

NHj = i · pj (6.3)

with

• NHj: number of single households moving to the UK in 2011 to 2014.These are households which according to the proposal are ineligible for4 years.

• j: single household or lone parent with dependent children or lone parentwithout dependent children

• i: number of EU immigrants moving to the UK in 2011 to 2014 (797 000,see Table 6.8)

• p: percentage of single (lone parent with/without dependable children)household nationwide, see Table 6.15. The calculated numbers NHj areshown in Table 6.17.

Calculation of Correction Factor Similar to the previous section it willbe estimated how many EU single households are eligible for Tax Creditsaccording to the UK proposal and the final agreement. The same equation isused:

r =i− j

i(6.4)

with

56

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6.3. Tax Credits

• rk: the fraction EU citizens eligible for tax credit and living more than4 years in the UK, k is an index which credit is used (WTC: WorkingTax Credit, CTC: Child Tax Credit),

• i: total number of particular household (single, lone parent with EUcitizenship) living in the UK (Table 6.16),

• j: number of particular single household moving to the UK in 2011 to2014 who are affected by the UK proposal (Table 6.17).

In this case the calculation is straight forward: For Child Tax Credits onlylone parents with dependable children are considered with i = 210 829 (fromTable 6.16), j = 52 632 (from Table 6.17):

rCTC =210 829 − 52 632

210 829= 0.7504 (6.5)

for working tax credit, only single household and lone parent without depend-able children are considered (i = 521 525 + 102 486, j = 141 886 + 27 895):

rWTC =521 525 + 102 486 − (141 886 + 27 895)

521 525 + 102 486= 0.7279 (6.6)

For Child Tax Credit and Working Tax Credit only lone parents with depend-able children are considered.

rWTC+CTC = rCTC = 0.7504 (6.7)

or i = 210 829 from lone parent without children and j = 57 384 from loneparent with dependable children:

rWTC+CTC =210 829 − 57 384

210 829= 0.7278 (6.8)

In the former case (Section 6.3), the 3 months waiting period is implicitlyincluded, whereas the latter (Equation (6.8)) considers no waiting period.Table 6.14 will be corrected with this factor, leading that this number ofsingle household and lone parent are affected by the 4 year ban. The estimatednumbers are shown in Table 6.18.

57

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

out-of-work CTC in-work WTC+CTC in-work CTC in-work WTC

Single household in receipt oftax credit according to Keen andTurner (2016)

31 900 68 100 4 900 45 000

Single household in receipt of taxcredit with 4 year ban implemen-ted

23 938* 49 563** to 51 102* 3 677* 32 755***

Difference (Number single house-hold affected by 4 year proposal)

7 962 16 998 to 18 537 1 223 12 245

Table 6.18.: Number of single household affected by the 4 year proposal.*: calculated with rCTC = 0.7504,*: rWTC+CTC = 0.7278, ***: rWTC = 0.7279

Amount in mio £ Number of claims Average claim in £

Out-of work CTC 1 165 179 900 6 476In-work CTC only 429 119 100 3 602In-work WTC only 175 80 700 2 168In-work WTC and CTC 3 405 359 200 9 479

Total 5 174 738 900 7 002

Table 6.19.: From O’Connor (2014): Tax credits: HMRC-modeled amountof awards to migrant families by type of claim, and calculated averageamount of claim.

Results

The findings are presented on Tables 6.18 to 6.20. In total 38 428 to 39 967EU citizens (single households) are affected. Table 6.20 gives the potentialsavings if the original proposal would be adopted. Assuming the numbers onTable 6.19 calculated by O’Connor (2014) is correct the reduction would beaccording to UK original proposal is between £243 - 258 million. The finalagreement on 18-19 February will further reduce it. Analogous to Section 6.2the final savings would be £125 - 137 million.It has to be noted that the calculation of couples was not conducted. Basedin the numbers on Table 6.14 it has a similar volume to single households. Asapproximation the same expenditure can be estimated (£130-150 million) byimplementing the final agreement, the reduction to overall tax credit budgetcan be estimated to around 1%.

58

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6.4. Summary and Conclusion

Number households Average claim in £ Total in £

Out-of work CTC 7 962 6 476 51 561 912In-work CTC only 1 223 3 602 4 405 246In-work WTC only 12 245 2 168 26 547 160

In-work WTC and CTC16 99818 537

9 479161 124 042175 712 223

Total243 638 360258 226 541

Table 6.20.: Potential saving by implementing the 4 year proposal by UKusing results from Tables 6.18 and 6.19

6.4. Summary and Conclusion

In this chapter the proposal of limiting access to benefits was studied: Childbenefit, Jobseeker’s Allowance, Employment and Support Allowance and TaxCredits.The main challenge is the fragmented data. The recording of nationalityand benefits were inconsistent. Not all benefit types could be calculated.One notable example are tax credits for couples and family households. Thischapter investigated how many persons are affected by the proposal and howmuch UK would save in their budget (in £and in percent).Tables 6.21 and 6.22 summarizes the findings. Table 6.21 lists how many EUforeigners are affected by the proposal/agreement. The numbers show it isa small number. Table 6.22 illustrate the potential savings. The potentialsavings are overall percentage-wise very small as well.One question has to be raised after the analysis of the agreement: Why did theUK government demand so little less even in their original demand? Did thegovernment not believe that the access of in-work benefits for EU citizens wasnegotiable? To get an agreement with the EU approval from the 27 membercountries (unanimously) is needed. The negotiation strategy will be reviewedin the following chapter.

# people/households affected Total number of claimants Percentage

Child Benefit 20 400 7 900 000 0.26%Jobseeker’s Allowance 10 315 785 620 1.31%Employment and Support Allowance 11 997 2 533 000 0.47%Tax Credit (single household only) 38 428 - 39 967 2 557 300 1.5-1.56%

Table 6.21.: Summary of the results given in Chapter 6: How many peopleand household are directly affected by the proposal and the deal

59

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6. Quantitative Analysis of the Agreement: Benefits and Tax Credits

Exp

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60

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7. Analysis of NegotiationStrategy and Outcome

The renegotiation strategy and the outcome was followed intensively by press,scholars and scientists, also by the parliament (House of Commons (2015)).The renegotiation was simulated (Weiss and Blockmans (2015)). This chapterwill summarize it from the press and from scientific publications. In thebeginning it will take a look into the negotiation as a two-level game (fromKroll and Leuffen (2016)), later reviews of the strategy and its outcome fromthe newspapers and journals.

7.1. Review: UK-EU Renegotiation as Two LevelGame

Since the Bloomberg speech in 2013, political scientists already instantly iden-tified the tactic Cameron played as a two-level game (see Hancke (2013);O’Mahony (2015); Usherwood (2015); Haughton (2016)). Hancke (2013)called it a ”classic ploy in international diplomacy”. In their article Krolland Leuffen (2016) considered the negotiation success more skeptical, thenegotiation outcomes are not a great overhaul, but rather minor symbolicconcessions. They described UK’s negotiation strategy as a two level gameby Putnam (1988) and studied whether the Brexit threat was able to sustainreforms. In the following the paper by Kroll and Leuffen (2016) is summarizedand reviewed.Putnams theory deals with negotiations with domestic and international in-teractions. In his original paper he referred to his observations on the G7summit in Bonn. Based on his model the government (or the negotiator)has to deal with two levels. On national level, domestic groups put pres-sure to the government to adopt their interests. The government seek powerby constructing coalitions among these groups. On international level, thegovernment seek to maximize their own ability to satisfy domestic pressures,

61

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7. Analysis of Negotiation Strategy and Outcome

while minimizing the adverse consequences of foreign developments. Level Iis the bargaining at international level between the negotiation, leading toan agreement. On Level II there are separate discussions between domesticgroups and the government about the acceptance of the agreement. The needfor the domestic acceptance at Level II certainly influences the Level I bar-gaining.In this specific case Level I is the renegotiation between UK and EU whereCameron persuaded his fellow EU leaders to get an agreement. Cameron’sobjective is get as much as possible. At Level II he seeks domestic approvalfrom the deal he struck with the EU via the referendum held on 26 June.The referendum itself is not about the agreement on 18-19 February, but thequestion in the referendum was whether to stay or leave the European Union.On Level II the interest groups are voters, parties (especially the Conservat-ive Party and the single groups within the party, e.g. the 1922 Committee)and lobby groups, who gives the government a mandate. Cameron gave theelection promise, if reelected he will seek renegotiation. For the negotiator itis the task to satisfy both levels. The higher the negotiation win is at Level I,the higher the odds are for a successful referendum. In this case the probab-ility of a Brexit is low, if the UK negotiator gains a lot. In the beginning atdomestic pressure for a renegotiation is evident, long before the negotiationtook place. This is evident by speeches by the Prime Minister, interviews,manifestos or debates at the House of Commons (for example see Hansard(2011a); Cameron (2013b, 2014a,b); The Conservative Party (2015)). Threedifferent negotiation outcomes are possible (illustrated in Figure 7.1):

1. In the first scenario there there are no reforms, the status quo is pre-vailed. UK gains nothing, the EU is not willing to grant concessions.The consequence is the possibility of a Brexit is very high. Cameronmentioned before the renegotiation took place, he may campaign againstremaining in the EU, if the renegotiation are unsuccessful (Cameron(2015b)): ”I rule nothing out”.

2. In the second scenario describes a compromise. The EU agree to minorcosmetic reforms, EU grants some concessions but does not give in toall demands. In this case the Brexit probability is reduced compared tothe first scenario. Cameron backs the agreement and promotes stayingin the EU. But ultimately he gives the final decision are the voters(referendum on Level II).

3. In the last scenario EU would give in to the demands, United King-dom gains a lot in this case. There will be major reforms in the EU.Consequently, the possibility of a Brexit is further reduced.

62

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7.1. Review: UK-EU Renegotiation as Two Level Game

Figure 7.1.: Two Level Game Scenario according to Kroll and Leuffen(2016)

Figure 7.2.: Set of preferences for the 27 EU member states

The most preferred scenario for UK is scenario 3. That gives them the max-imum gain on the negotiation table and also gives them the highest possibilityof approval in a referendum. In the paper it is not stated what exactly scen-ario 3 would be. The assumption of scenario 3 would be the case if DavidCameron negotiated the free movement of persons directly and demanded asafeguard clause that would allow him to cap the annual net migration num-bers to 100 000. Their least preferred set is 1, that means that they fail inLevel I, thus leaving no room for approval on domestic level. Their preferredset should be 3 > 2 > 1 (scenario 3 over 2 over 1).For the EU member states a more differentiated view has to be taken. Theirpreference depends on interest and agenda. This is shown in Figure 7.2. Thecommon interest for the 27 member states is to keep United Kingdom withinthe European Union. The authors mentioned they fear the high cost and thepossible consequences of a Brexit. In that case they are willing to concedeminor changes, thus their primary preference is scenario 2. For the secondand third preference there are differences between the 27 member states: it

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7. Analysis of Negotiation Strategy and Outcome

depends on which group they belong to and how they would value the cost ofa non-agreement. Some nations (Group 1) value the fear of a Brexit as veryhigh, thus willing to give in more to the UK, whereas another group (Group 2)are more reluctant to give more concessions, thus valuing the principles of theEU higher than the possible cost of losing UK as a member of EU. The UKsupporters has the preferred set of 2 > 3 > 1, while the other member stateswould prefer the set 2 > 1 > 3. Based on complete knowledge informationsolution 2 will come out, which according to the authors United Kingdom hasalready anticipated.According to the paper the primary bargaining position of UK is the threat ofleaving the EU, which is considered credible. Polls over the years has showna close parity between remaining and leaving. In the Conservative Manifestoand also earlier in the speeches by the PM Cameron mentioning an in-outreferendum if reelected. Also the win of the general election gave them themandate of renegotiation and an in-out referendum. Also the governmentalready set up the referendum act in 2015. The main question is how stronglywould other members value the membership compared to the expected costsof Brexit. If Cameron pushes the boundaries too far to the solution 3 and de-mands too much, he would have risk defection from his allies (on internationallevel). Also they know that there few states that are vocal to keep them inthe Union, in general they identified the Northern States (Ireland, Germany,the Netherlands and Sweden) are willing to give more based on their interest(e.g. German fear of losing influence within EU following a Brexit), whereasthe southern member states (the Mediterraneans) they are less willing to givein concessions, in case of a Brexit the power might shift more toward thesouthern states, the eastern states are unwilling to avoid an exit at any costs.The paper states United Kingdom were very cautious by formulating its de-mands, held talks with single member states since 2013, avoiding what theyreally wanted. The demands in the letter are rather vague, UK adjusted orlowered their claims to make sure that they get an agreement with the EU,the proposals Cameron made is already softened and leaning more towardsscenario 2.In the authors point of view this is an example of a typical EU compromise.UK did not maximize their efforts to get a best deal they could get. Theywatered down their demands beforehand to make sure a deal can be struckwith the other 27 members of the EU. Scenario 3 was never in place at all.Even if UK would win outright in the negotiation, it is not a major reform (asclaimed in the paper, since free movement was not directly but via benefits),it is not clear that the probability of a Brexit is further reduced (referendumis not the approval of the agreement but on the membership). In the end theyare skeptical that this referendum will settle the relationship between UK and

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7.2. Press Review: Negotiation Strategy and Outcome

EU once for all.

7.2. Press Review: Negotiation Strategy andOutcome

Reviews by the press are more directed towards the demands and results.Less negotiation strategy like the section before. For few papers only thecomparison between demand and outcome are shown here.

Guardian

In November 2015 Traynor (2015) reviewed the letter from Cameron to Tusk,noting it was necessary to write a letter to formulate a list of demands. It israther unusual to negotiate without a written document, rather than speechesand interviews. The four topics which are presented not new, all parts arementioned in the speeches before, noting that the immigration issue is thetoughest issue to crack, citing it may against the principle of free movementof persons. The demands are, according to EU officials, modest, a deal ispossible.In December 2015 the Observer Editorial (2015a) viewed the negotiationstrategy very critical. They acknowledged the issue of reforming the EUis a right one, the tie that issue with the membership to an unnecessary risk.The editors would prefer Cameron would make ”a pragmatic case for stayingin Europe while acknowledging its need for long-term reform”. Instead DavidCameron framed the EU as ”a problematic set of institutions” and UK willonly stay if they get the reforms. The topics Cameron demanded ranges fromsymbolic, easy to grant requests to difficult ones which contradicts currentEU law. The timing for renegotiation is not a good choice, since upcomingelections in Germany and France are scheduled in 2017. Even in case thePrime Minister will get concessions, it is doubtful that the deal will have asignificant impact on immigration, since benefits are not the main draw forimmigration but higher wages.Shortly after the negotiation on 18-19 February Rankin (2016) listed in herarticle the outcome. In terms of the emergency brake (in-work benefits) andchild benefit, they consider major concessions made by Cameron: Benefitsare only for new migrants, and not insisting on the stop of child benefit. Theduration of the safeguard clause for in-work benefit is considered a concession

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7. Analysis of Negotiation Strategy and Outcome

as well, since he demanded 13 years. The Visegrad group1 started with 5years. The non-renewable 7 years are much closer to the original demandsby the eastern states. The indexation of child benefit also applies only fornew arrivals and from 2020 on the indexation can be applied to old claimsas well. This topic is also considered a relaxation to the original demand.For the topic of ever closer union, the author saw a more emphatic languagecompared to the 2014 statement, that the UK are not committed to furtherintegration, The stronger protection from the Eurozone is considered as apositive outcome for Cameron.The Observer Editorial (2015b) on 21 February, concluded that the PrimeMinister did not negotiated well, he did not play his card, however it is diffi-cult to renegotiate in light of the upcoming election in France and in Germanyin 2017. However of what is considered possible, he is able to get some conces-sions, the indexation of child benefits and reduction of in-work benefits andsome symbolic language. However they acknowledged that the quick deal isdome due to the situation in other EU member states, pointing out Franceand Germany. The authors considers given the circumstance the deal as ”im-pressive”. The deal however is considered not a fundamental shift for therelationship with the European Union.

Other newspapers

The Financial Times saw the deal falling well short of the referendum prom-ise (Barker (2016)). Cameron made major concessions in the field of child be-nefits and in-work benefits. Some aspects are more symbolic, in fiscal termsthey consider it as ”small beer”. For in-work benefits there is the same notion,however the complex model adopted to restrict in-work benefits for 4 yearswhich was considered by many as impossible. In terms of sovereignty it isa symbolic victory and the treaty changes between the euro and non-euro isconsidered a qualified victory.The Independent looked at 3 issues (Wright (2016)): sovereignty benefitsand protection from Eurozone integration. While in benefits he consideredthat as the hardest part, however it was easier since before the negotiationsUK would be eligible. However in the duration of the clause is not what hewanted, the PM made concessions the 7 years are closer to the 5 years thanthe 13 years. Child benefit is considered unsuccessful. Cameron got what hewanted in the eurozone and sovereignty.

1Members of the Visegrad group are Poland, Czech Republic, Slovakia and Hungary

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7.3. Conclusion

7.3. Conclusion

The renegotiation results are not considered a big substantial shift within theEU. The United Kingdom had basically one powerful and credible and legit-imate leverage: the threat of withdrawal from the European Union. EU arewilling to grant concessions, in sake of keeping the UK within the Union. Thepotential cost and fear of the Brexit is considered high.The Prime Minister knew immigration is a sensitive issue and touching orputting the principle of free movement in question is a fundamental shift andthus not possible to negotiate this. The topic of free movement issue is movedtowards the access of benefits.What in my opinion considered as a surprise is the fact he was able to renego-tiate the topic of benefits, even though UK negotiation position is improved,that it was written in the 2 February draft. However calculations presented inthe previous chapters show that the overall volume on the negotiation tableis not as big as they advertised, and the potential relief to on the UK benefitsystem is not as big, even in case United Kingdom would be able to get the4 year waiting period for incoming EU citizens. The question can be askedif the potential reduction will reduce the strain of UK benefit system. It isquestionable and it has yet to prove that the reduction of benefits will leadto a decrease in immigration.In terms of negotiation, the two level game was considered with limited successby Kroll and Leuffen (2016). The Guardian also questioned the negotiationtactic.I personally agree the risk of a Brexit are too high comparison to the poten-tial gains. I also think he might get a better negotiation position if he wouldset a better timing: for example after the general election in Germany andFrance or before expansion negotiations with future EU members when anunanimous decision within the EU is required.

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7. Analysis of Negotiation Strategy and Outcome

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8. Adaptability to Switzerland

After the 9 February 2014 popular vote about the Mass Immigration Initiative(Masseneinwanderungsinitative MEI), the Swiss Federal Council (Bundesrat)is faced with the challenge to implement the initiative within 3 years. Theproposed text is in conflict to the principle of free movement of persons whichis part of the Bilateral Agreements I with the European Union, it requiresapproval from the European Union, either through negotiation or an imple-mentation which is in line with the principle of free movement.The similarity between United Kingdom and Switzerland is the issue of im-migration and free movement. However there are notable differences. Thischapter highlight those points, identify aspects, possible learning and if new(if there are any) approaches can be transferred to the case of Switzerland.

8.1. Background

In Central Europe, Switzerland has the highest percentage of foreigners (24%as of 2014) and a high net immigration rate (0.76% in 2014). That is a higherpercentage of foreigners compared to United Kingdom (7.7% foreigner andnet immigration of 0.7%) and also higher than neighboring countries suchas Germany, Austria and countries of similar sizes like the Netherlands andBelgium. On 9 February 2014, the popular vote mass immigration initiativewas adopted with a majority of both, voters (50.4%) and cantons (14.5 out of23). The proposed Article 121a BV1 has the following content (CH (2014)):Switzerland regulates immigration of its own, the number of immigrants islimited by numbers and quotas (also the limitation of family reunion andbenefits), maximum annual figures and quotas for employed foreigners shallbe geared towards the economic interests of Switzerland in consideration of aprecedence for Swiss citizens (Inlandervorrang).The realization should be done within 3 years, thus giving the deadline untilFebruary 2017. The main challenge about this article is that does not comply

1BV: Bundesverfassung (Federal Constitution)

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8. Adaptability to Switzerland

with the agreement of the Free Movement of Persons Agreement and it is adifficult task to implement it without violating the principle of free movement.The free movement of persons are embedded in the Bilateral Agreement I withthe EU. It covers technical obstacles to trade, public procurement market,agriculture, research, civil aviation and overland transport. The relevanceof this agreement is for both parties to get easier access to labor, goods andmarkets. The agreements are itself independent, but they are coupled togetherwith a Guillotine Clause. In case of canceling one contract, all other contractsare canceled as well, in order to prevent cherry picking.

8.2. Similarities and Differences between bothcases

There are some similarities between United Kingdom and Switzerland: Bothhave a positive net migration over the last decade. Both countries have todeal with the EU on the topic in free movement and immigration. Also theUK government and the Swiss Federal Council got the task from the pub-lic. The Federal Council got it through the popular vote on 2014, and theUK government won the general election and fulfilled their election promiseto renegotiate with the EU. The danger of a non-agreement (a failed negoti-ation) is similar: in that case UK voters will vote in favor for a Brexit, forSwitzerland they may implement an article, that is against the EU principles,without the consent of the EU. The worst consequence could be the cancella-tion of the Bilateral Agreement I.However there are notable differences: Contrary to United Kingdom, Switzer-land is not a member of the European Union, Switzerland has to negotiateas an outsider. The UK addressed the issue of immigration more indirectly,since the principles of free movement of persons is considered a non-negotiabletopic. They addressed it through the access of benefits for newly arrived EUcitizens. Switzerland has to deal with a proposed bill, where numbers andquotas are mentioned, therefore the Federal Council may have to addressfree movement more directly. The setting of the renegotiation are different:Switzerland has to deal with the immigration as a single topic only, whereasthe UK renegotiation of immigration and free movement in embedded withthree other topics (competitiveness, sovereignty and governance). The nego-tiation leverage is different: The Brexit threat was a considered as a credibletreat and thus a high leverage, without it the negotiation position of UKwould be rather weak, Switzerland has no real leverage in hand, the potential

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8.3. Transferability of UK argumentation

termination of the Bilateral I, is considered not credible and the terminationof the Bilateral I is not desirable for both parties, especially for Switzerland.There is one major difference that also has to be considered: United Kingdomdid not protected its labor market in 2004. They opened it for EU-8 citizens,but later they changed their policies and restricted access for Bulgaria, Ro-mania (2007) and Croatia (2013) through the transitional clause. Switzerland,however, protected its labor market for the new member countries.

8.3. Transferability of UK argumentation

The argumentation UK did in the past regarding immigration and free move-ment of persons can be applied to Switzerland as well: the projected increaseof the population (for Switzerland the projected population is between 9.4-11 million in 2045, current population is 8.339 million, source: BFS (2015))and the strain it puts to infrastructure, roads, schools, housing and publicservice. It may fit the criteria ”exceptional situation” that currently existsin the United Kingdom, as stated in EU (2016a)), even though an objectivecriteria is not mentioned.Other that that, the approaches and arguments of UK are different. UK de-cided to address immigration indirectly: knowing it is difficult to limit freemovement directly UK identified the access of benefits as key issue. Theyargumented that by reducing the benefits for EU migrants there are able toreduce immigration. They believed in a causal chain between benefit andimmigration, that has yet to be proven. One can discuss if the limitation ofaccess of benefits of newly arrived foreigners can be considered some sort ofnational prioritization. It is difficult to transfer this argument, since Switzer-land may have to address the free movement of persons more directly. Thelimitation of in-work benefits are not mentioned in the initiative. The drafttext of the initiative states only the limitation of access of social benefits, itis not a direct implementation and numbers and quotas are not in place here,the UK agreement is not strong with as CH.In the final agreement UK were granted a safeguard mechanism for 7 years,which allows them to limit access of benefits. However in the final the de-claration on the 18-19 February it also is stated that in particular UK ”as ithas not made full use of the transitional periods on free movement of work-ers which were provided for in recent Accession Acts” EU (2016a, Annex VI,p.34). UK got credit for past policies, also they got the mechanism in light ofthe potential Brexit threat: two points which did not apply for Switzerland.Since UK voters decided in favor of leaving the EU (see Appendix A), the

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8. Adaptability to Switzerland

agreement from 18-19 February, including the safeguard mechanism, will nottake effect (Miller et al. (2016)). It more than is questionable without anexisting UK-EU agreement about immigration could be offered to an non-EUmember first.

8.4. Known Proposals

In Switzerland, there are different proposals trying to address the principleof free movement and the realization of the Swiss MEI vote. Tobler (2015a)summarized different proposals. Some of the proposals are strictly literal tothe bill, others use a flexible interpretation and try to adhere to the FreeMovement of Persons.The proposal by economiesuisse (2015) includes the provision of a global quotaof work permit, for EU and EFTA nationals a bigger share of permits are re-served and a safeguard clause if number is exceeded the quota. The FederalCouncil should set the contingencies per regulation like the current practicefor non-EU nationals and a number of permits should be reserved for highlyqualified persons.The Federal Council proposed in March 2016 their plan to realize the popularvote (Bundesrat (2016)). In their proposal it contains a unilateral safeguardfor EU/EFTA Member states. If immigration is above a certain threshold theFederal Council has to set annual limits. The Federal Council takes accountof the economic interest and a newly established immigration commission.Also there are additional internal measures like a better implementation ofthe existing law, tackling labor market abuse and a better utilization of theresident workforce.Also the model of a permanent safeguard like Lichtenstein has been discussedin the public. Lichtenstein has an open labor market but has a agreement withthe European Union to limit immigration to their country. The agreementwas of temporarily nature originally, but since 2006 it is considered practic-ally permanent (Tobler (2015b)). To adopt Liechtenstein’s model it is notcomparable and also not realizable, since Lichtenstein is a very small countrywith a population of around 36 000.Also one point of interest are the Turkey-EU accession negotiation in thepast: the EU raised the issue of a permanent safeguard. In their negotiationframework of the EU, long transitional periods, even permanent safeguardsmay be considered for Turkish citizens (EU (2005)). Tezcan (2015) states inher PhD thesis that such a clause, applied to the free movement of persons isin conflict with the principle of EU free movement of persons. Also one have

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8.4. Known Proposals

to consider that this case has not been realized yet.Ambuhl and Zurcher (2015) proposed a flexible approach where the imple-mentation is based on quotas for non-EU nationals, for EU nationals a generalfreedom of movement without fixed quotas or priority by with a safeguardclause for statistical exceptional cases and for Switzerland accompanying in-ternal measures. This model is based on the relative net migration distribu-tion of EU/EFTA citizens to EU/EFTA states. The authors considered netmigration as excessive, if is beyond a certain threshold. The paper suggeststhe threshold 2 times the standard deviation above the mean value of rel-ative net migration, then the relative net migration is considered excessiveand the safeguard clause could be activated. Their basic idea is to changeas little as possible and not abandon the idea of the Free Movement of Per-sons Agreement. This requires little modification of the existing agreement.That principle, to change as little as possible and not to undermine the EUprinciple of free movement of persons, is state of their current research.

Alternative Instruments to Control Immigration by different countries

Known proposals are common that either quotas/contingents or safeguards(unilateral) are used. The proposals may or may not violate the principle offree movement of persons to a certain degree.Suggestions which has not been covered so far is the taxation of immigration.Few countries in Asia uses the so-called levy system. The most prominentexample is Singapore. The South Korean government is currently consideringimplementing such a model. This approach has the advantage that this in-strument has a steering effect. However there are major disadvantages of thismodel: First this measure is no considered as a business friendly measure. Itplaces an additional burden to the firms hiring people from outside the coun-try and it drives labor costs and consequently reduces the competitiveness ofthe company.The direct implementation of Singapore’s model would definitely violate thelaw2. However one can ask, if such an immigration tax is replaced by a depositmodel. The firm has to pay, in case they hire somebody from outside Switzer-land. The firm will eventually get the deposit back (after a period of time,after 1 or more years). This may be some sort of a national prioritizationbut it is not that strong as for instance, also a weak form of discrimination

2That model is based on a industry quota (for instance the service sector) and a tax,which firms have to pay monthly, around 25% of the paid salary. Levy are payable forcertain types of work permits. Few permits are exempt, e.g. executive management,see more on OECD (2012)

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8. Adaptability to Switzerland

that is of temporary nature. It may be acceptable if this model applied to allnationalities coming to Switzerland: to EU, non-EU nationals and in somecases to some Swiss persons, who never lived in Switzerland before (that maybe a small number). The steering effect is surely much weaker compared to atax.As a sole measure such a deposit model might be doubtful, in combinationwith a safeguard just to avoid quotas, that instrument can be considered.

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9. Summary and Conclusion

In the preceding chapters an investigation was made about the renegotiationbetween United Kingdom and the European Union was made. The emphasiswas on the free movement of workers and their access to social benefits. As-pects on the free movement policy was for new member states was introduced.In 2004 UK they opened their labor market to EU-8 citizens. The effect ofopening the labor market in 2004 was an increase of EU citizens in the UK.In 2007 and 2013 UK safeguarded, like the other member countries, its labormarket through transitional clauses.Prior to the renegotiation with the EU the UK government decided to negoti-ate the free movement indirectly via the access of social benefits. The resultsof the agreement was quantitatively and systematically studied. The analysisshows that even the original demands and the outcome are weak and notsubstantial. One possible reason might be the UK government under DavidCameron wanted a deal with 27 member countries, so he could promote fora remain. Reviews from scientists and observers show that the negotiationstrategy and outcome (as two-level game) had limited success.The free movement of persons is a recent topic in Swiss politics. After thevote on 9 February 2014 the Federal Council faces the task to implement theproposal. The proposal however is in conflict with the principle of free move-ment of persons. UK and Switzerland share similarities (e.g. the positive netmigration), that might justify to grant Switzerland the safeguard instrument.But there are major differences in settings between UK and Switzerland (EUmember vs. non member, Brexit leverage vs. no leverage, opened labor mar-ket vs. protecting labor market for new member states). The key differenceis the fact that UK addressed the free movement indirectly whereas Switzer-land may need a more direct approach. Therefore the argumentation chain ofUnited Kingdom might not apply for Switzerland.

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9. Summary and Conclusion

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A. After the Referendum

On 23 June 2016, the majority of the voters (51.9%) in the UK decided to leavethe EU. It is expected that the government will follow that. As consequencethe agreement on 18-19 February will not take effect. In the aftermath ofthe referendum result, David Cameron announced his resignation as PrimeMinister. The Conservative Party has to find a new party leader and a newPrime Minister in September 2016. The process of leaving the EU is in thehands of the new Prime Minister, she will trigger Article 50 of the LisbonTreaty, which describes the process of leaving the Union.Days after the vote there is a debate whether a Brexit will happen. Thereferendum is non-binding, the government can technically ignore it. In anFinancial Times article by David Allen Green (2016a) he draws different scen-arios such a vote could be overturned, for example a low turnout (which isnot the case here), or the Brexit is a matter of parliament and they overturnthe vote. One option which happened in few instances in the past especiallyafter a failed referendum, the government will renegotiate a new deal and puta referendum on the ballot again. Similar is suggested by Gideon Rachmanon Financial Times on 28 June 2016 (Rachman (2016, p.11)). He pointed outthe examples of Denmark: after rejecting the Maastricht treaty on the ballot,it was accepted later in a second referendum after EU granted concessions.Same as with Ireland who rejected the Nice treaty and the Lisbon treaty.I agree that David Cameron lost the Brexit vote because the deal he struckon immigration and free movement was too weak. In hindsight he would havedefinitely won the Brexit vote if he had ”not watered down” his original de-mands and insisted to limit the number of net migration to 100 000. Theseare the numbers he mentioned in speeches and in the manifesto: ”to cut an-nual net migration to the tens of thousands” (The Conservative Party (2015,p.29)). If Cameron hypothetically had put that demand in the letter to Tuskand got a compromise which may give him a safeguard instrument to controlimmigration beyond a certain level directly (a much stronger instrument thanthe agreement on 18-19 February), the Brexit risk is not necessarily averted:The goal of reducing the net migration number to 100 000 is well known tothe general public since he became Prime Minister, and any deviation fromthe 100 000 could be seen domestically as backing down, and David Cameron

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A. After the Referendum

could not deliver to his promise.Currently the most likely scenario is that UK will leave the EU. But there arescenarios which a Brexit will not happen: An economic crisis that puts UK ina major recession may prevent a Brexit. Green (2016b) already stated in hisrecent article the UK government can take steps to to slow down the Brexitprocess in the hope that Brexit will never happen.Or a new government could try to renegotiate a deal with the EU and put areferendum again. Rachman said that they might win a second referendum,if the EU is willing to give an instrument to safeguard migration directly. Incase of a renegotiation, but it is unknown if if the EU is willing to grant theUK such an instrument. Personally I think a Brexit still can be averted, butI can not say if such a scenario will follow the script outlined by Rachman orGreen.

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B. Notes about Data andStatistics

Keen and Turner (2016) admits, data and statistics are very fragmented andincomplete when it relates to migrants and benefits. It is also mentioned thedata are generally from multiple sources. They reasoned that nationality ofthe benefit claimants are not routinely gathered by the DWP (Department ofWork and Pension) and the HMRC (Her Majesty’s Revenue and Customs),when they administered benefits, payments or credits.One example for the inconsistency is how they count the claims for out-of-work benefits in the statistics. Although it is widely assumed that underthe column EU nationals, UK nationals and non-EU nationals are accountedto those nationalities. In fact the nationality they count are the nationalitywhen first registered for the National Insurance Number (also as NINo). Inmany cases the nationality at NINo is their only source. That means thatin the meantime one claimant, who originally has e.g. an EU citizenshipand thus first registered as AUT or GER, may naturalize and accept a UKcitizenship years after. Once he claims for one in-work or out of work benefit(e.g. Jobseeker’s Allowance), statically he will counted as non-UK and EUcitizen despite having now a UK citizenship (see illustration on Table B.1)In the written answer about ”Welfare Tax Credits: Foreign Nationals” NickyMorgan stated (Hansard (2014a, col799W)):

”For this purpose, as nationality was based on nationality at thetime a claimant first registered for a national insurance number(NINo) the nationality of some of those claimants may have sincechanged. The information is not therefore sufficiently reliable tobe used for formal statistical purposes.”

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B. Notes about Data and Statistics

1994 P. (EU citizen) moves for job in the UKRegistered for a NINo (National Insurance Number as Austrian

2010 P. takes over UK citizenshipIn NINo still counted as EU

2014 P. applies for Jobseeker’s allowanceIn statistics P. is counted as non-UK and EU (based on time atNINo registration)

Table B.1.: Example for record keeping

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