Free movement: Why reforming rules on in-work benefits doesn't require treaty change

Following David Cameron's speech on immigration, much has been made of his comments that the package of measures he proposed to reform EU free movement would require treaty change.

In some cases, the speech was ambiguous about what exactly was being proposed. For example, did Cameron really say EU migrants will need a job offer before coming to the UK? This is important because it has legal implications regarding whether some, all, or none of the proposals require treaty change, changes to secondary EU legislation or simply changes to domestic law. Although, politics will of course also play a major part.

In addition, some have questioned whether the proposal, outlined by Professor Damian Chalmers and our Research Director Stephen Booth and adopted by Cameron, to limit EU migrants' access to in-work benefits for a certain period of years could be achieved without treaty change, as the authors claim.

Today we have published  Chalmers' and Booth's assessment of the legal implications of the measures proposed in the Prime Minister's speech and a restatement of the case for why access to in-work benefits can be restricted via amendments to EU legislation rather than a treaty change.

Safe to say much of this is legally complex, but below is a summary of a summary of a longer legal note by Professor Damian Chalmers, which you can read in full here.

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David Cameron's speech can be divided into four broad types of demand:

1. Four-year restriction on EU migrants’ access to in-work and child benefits

David Cameron mentioned two proposed reforms:

a) “once they are in work, they won’t get benefits or social housing from Britain unless they have been here for at least four years.”

This could be achieved via amendments to EU legislation: This is the most legally complex of the proposals but we argue that it does not require Treaty change for two reasons. Firstly, access to in-work benefits is currently granted in EU law by virtue of a piece of secondary legislation, rather than by the Treaty article on free movement of workers. Secondly, the Treaties grant considerable discretion to the EU legislature (the Council of Ministers and the European Parliament) to place restrictions on access to such benefits provided that the legislation facilitates free movement more generally (which the relevant Directive would continue to do), the restrictions are based on objective criteria and are not disproportionate to the objectives they pursue.

b) “If their child is living abroad, then there should be no child benefit or child tax credit at all no matter how long they have worked in the UK and no matter how much tax they have paid.”

Depending on what is sought this could be achieved under domestic law or amendments to EU legislation but if the objective is a hard and fast residence requirement this could be achieved via amendments to EU legislation rather than Treaty change.

2. Tighter restrictions on EU jobseekers

David Cameron mentioned two proposed reforms:

a) “We want EU jobseekers to have a job offer before they come here and to stop UK taxpayers having to support them if they don't.”

This depends on exactly what is proposed. If he meant that any EU citizen must have a job offer before they can come into the UK, this would certainly require Treaty change.

However, read in combination with the pledge to “stop UK taxpayers having to support them”, the proposal is better interpreted as suggesting that no social benefits will be granted to jobseekers. EU law already establishes that jobseekers are not entitled to social assistance and therefore such a reform would not require changes to EU legislation.

b) “We also want to restrict the time that jobseekers can legally stay in this country. So if an EU jobseeker has not found work within six months, they will be required to leave.”

In principle, the UK can already do this under its domestic law. EU law only grants a right of residence for more than three months to those who are employed, self-employed, and economically self-sufficient as well as their family members.

However, the ECJ has ruled that individuals cannot be expelled as long as they “can provide evidence that they are continuing to seek employment and that they have a genuine chance of being engaged”. While the onus is on the individual to prove this, clarifying what this condition means could be achieved by amending EU legislation. A hard and fast six month deadline would likely require Treaty change.

3. Abuse of free movement

David Cameron mentioned two proposed reforms:

a) “stronger powers to deport criminals and stop them coming back…and tougher and longer re-entry bans for all those who abuse free movement including beggars, rough sleepers, fraudsters and people who collude in sham marriages.”

Those deported at the time of conviction can be refused re-entry under existing EU law. Indeed, the German government has said it will use its domestic law to impose re-entry bans of five years for those who commit benefit fraud. The potential difficulty is for those EU citizens with family in the UK, who may be able to appeal deportation under the rights to family life guaranteed by the European Convention on Human Rights.

In the case of significant criminal offences where the individual has served a long prison term, the deportation may be several years after the offence, and it is open to the individual to argue that they are a reformed character. This poses difficulties as the individual threat to public policy must be a present threat. Albeit this requirement is currently imposed by an EU Directive, we believe that, if the provision were repealed, there is a strong chance that the ECJ would reinstate it as a Treaty requirement.

b) “We must also deal with the extraordinary situation where it's easier for an EU citizen to bring a non-EU spouse to Britain, than it is for a British citizen to do the same. At the moment, if a British citizen wants to bring, say, a South American partner to the UK, then we ask for proof that they meet an income threshold and can speak English. But EU law means we cannot apply these tests to EU migrants.”

This would likely require Treaty change: There are a number of judgments where the ECJ has stated that refusing to grant a non-EU national family member residence would violate the Treaty because it would discourage the EU citizen from exercising their rights to free movement.

Alternatively, it would be possible for new EU legislation to harmonise requirements on family reunification between EU citizens and non-EU nationals, so that the latter could only join the EU citizen in another member state if they meet certain requirements. However, this would entail harmonisation in an area (non-EU migration) where successive UK Governments have sought to limit the EU’s influence. Concern to prevent marriages to citizens from other member states being used as a vehicle for marriages of convenience can be addressed through tightening up existing EU legislation.

4. Tighter restrictions on migration from new EU member states

David Cameron proposed:

“So we will insist that when new countries are admitted to the EU in the future, free movement will not apply to those new members until their economies have converged much more closely with existing Member States.”

The UK could use its existing veto over new countries joining the EU to insist on these terms.

Six arguments Cameron can make to help reconcile Warsaw to his proposals for reforming EU free movement

Polish Europe Minister Rafał Trzaskowski's comments on Monday's Newsnight, where he said David Cameron’s plans to stop EU migrants from claiming benefits for the first four years after they arrive in Britain would be a "red line" for Warsaw, were widely cited in the UK media, much like Polish Ambassador Witold Sobkow's response to our initial report which heavily influenced Cameron's immigration speech.

As expected all along, Poland will be the biggest single obstacle to the changes.

Some of the reluctance is understandable. Following Poland's accession into the EU after having spent too long on the wrong side of Europe's historic dividing lines, Poles understandably do not want to accept anything that smacks of 'second class' status within the EU. While many Poles may privately think the proposals are reasonable, they also expect their government to stand up for the interests of Poles abroad, and any Polish government will find this hard to sell domestically, including a Law and Justice-led one (the issue has already lead to interesting discussions within the ECR group).

So how should Cameron deal with this? Here are six arguments he can make:

1. These reforms are the best way to let free movement stand: Cameron defended the principle of free movement in his speech and he did not pledge to impose an 'emergency brake' or quotas despite substantial domestic pressure, as to his credit Trzaskowski recognised. This reform package will allow the UK to stay signed up to free movement rules - a key Polish objective.

2. The UK cannot become a contribution-based system overnight: We hear this argument a lot out of Warsaw: "If the UK is concerned that its welfare model is too open, it can re-design it to bring it into line with those on the continent - tomorrow if it so wished. It can be done unilaterally and has nothing to do with the EU."

There are several problems with this position. Re-organising the UK's entire welfare system would be an absolutely massive undertaking - politically, economically and administratively. It would basically involve re-writing the UK's entire postwar settlement. This may or may not be desirable, but it simply won't happen any time soon, especially as a result of EU pressure. For one, the UK public won't have it.

Cameron could even bat the ball back in Warsaw's court by arguing that "It would be super-easy for you to adopt more ambitious emissions reductions. You just need to replace your dependence on coal with renewable energy, and you're in line with the rest of the EU. It can be done unilaterally and has nothing to do with the EU."

3. The UK shouldn't have to choose between keeping its welfare model and staying in the EU: The logical extension of the argument above is that only a French or Germany style insurance system is compatible with EU membership. Clearly, giving the EU an effective veto over such a sensitive area is not politically sustainable - in addition to being awfully discriminatory against the UK. Changing the rules around in-work benefits on the other hand is a pragmatic way to in effect bring the UK into line with continental systems without challenging the country's entire political order.

4. Poles and other EU migrants in the UK could be worse off under such a system: Ironically, if the UK were to adopt a continental model and scrap in-work benefits and tax credits for low-wage earners entirely, it would hit EU migrants in the UK much harder than the introduction of a temporary qualification period as it would permanently reduce their income. Is this really a more desirable outcome from the perspective of the Polish government and other opponents of Cameron's proposals?

5. Workers on low wages do not contribute significantly to the welfare pot: While the vast majority of EU migrants come to the UK to work and make a positive contribution to the UK economy, as our research showed, workers on low-wages pay very little in income tax and national contributions due to the UK's generous tax free allowance (£10,000 per year and rising) and national insurance contributions threshold (£153 per week). This means that far from funding their own benefits, these workers, especially if they have dependent children, can actually be a net burden on the public purse. Furthermore, despite their misleading name, tax credits in the UK are a cash benefit funded via general public spending and are not correlated to individuals' tax payments.

6. The principle enjoys widespread public support across the EU: The basic principle of establishing a link between contributions and right to access benefits enjoys wide-spread support in other EU member states as the YouGov polling below demonstrates:


Finally, tone is also vital. Cameron made a big mistake by singling out Poles earlier this year leading to the deterioration in relations as revealed in the leaked Wprost tapes, a mistake which he avoided making again in his immigration speech last week. The rules will apply to everyone from the rest of the EU and not one particular group or country. 

Did David Cameron really say EU migrants will need a job offer before coming to UK?

The dust has settled somewhat after Cameron’s much-anticipated immigration speech.

As we set out here, we welcomed the balance the Prime Minister struck and were particularly pleased that he co-opted our proposal to let the principle of free movement stand, while limiting access to in-work benefits until after a certain period working in the UK.

However, there is one particular passage that has caused some confusion, which is the following:

“…Second, we want EU jobseekers to have a job offer before they come here and to stop UK taxpayers having to support them if they don’t.”

This sounded like David Cameron wants to require EU migrants to have a job offer before they come to the UK. As some have pointed out this would definitely require a treaty change, since the ECJ has made it clear that the EU treaty articles on free movement must be interpreted as granting a right to move “freely within the territory of the other Member States and to stay there for the purposes of seeking employment.”

However, elsewhere in the speech, Cameron was much less categorical:

"So let’s be clear what all of these changes taken together will mean. EU migrants should have a job offer before they come here. UK taxpayers will not support them if they don’t. And once they are in work, they won’t get benefits or social housing from Britain unless they have been here for at least four years."

In combination with the "UK taxpayers will not support them" bit, the "should have a job offer" line is much more like an aspiration than a requirement. Indeed, this is the logic of the rest of the speech: Cameron would not have needed to pledge to ask unsuccessful jobseekers to leave after six months if they were to be denied entry in the first place.

Admittedly though, Cameron could have been much clearer on the specific point about the need for a job offer prior to entry. The ambiguity in his speech may risk creating false expectations.

We will publish a short briefing in the coming days looking at the various legal implications of the proposals set out in the speech.  David Cameron was clear that he thought the entire package would require treaty change. However, there are several elements to the speech and the proposals - changing the rules around in-work benefits only one. Here, we are of the view that ours and Professor Damian Chalmers' proposed changes to in-work benefits could be achieved via EU legislation rather than treaty change (we should point out that others disagree).

So stay tuned...

What impact will Cameron’s EU free movement changes actually have on the ground?

We’ve laid it out in our response today, but in an attempt to elucidate things we’ll go into a bit more detail in this post. In addition to the general 'fairness' discussion - making sure that there's a link between what people put in and what they take out - the debate is now centred on the practical impact of the proposals.

In a twitter discussion we had last week with Michael O’Connor and Jonathan Portes on the number of EU migrants effected by these sorts of curbs, they seem to claim that around 10% of "Eastern Europeans" will be affected. The conclusion they seem to draw is that the proposal won't make that much of a difference.

To reach that figure they seem to simply take the percentage of Eastern European's claiming benefits in 2013 - it does not seem to be based off the data over four years or compared over time to see if this snapshot is representative. The data available is unfortunately pretty bad, but there's enough data to look over time, rather than a single year.

 

As we have laid out in our response today, we think these measures will hit between 14% and 16% of total EU migrants - one in seven EU migrants. This is shown in the table above and taken from the average of the final four years percentages in the graph below.  As we have noted before, its obvious and logical that the longer migrants stay in the UK the more benefits they claim (as they have more children etc) - but from that it's hard to draw the conclusion that the impact is insignificant.

As a share of gross flows (shown in graph below) this will likely impact around 100,000 people over the four year period. This is based on flows from the four years before 2008 and 2014.

Is this a significant impact?  Depends on what you want to achieve. If you want to end free movement, it's not. If you want to put a cap on free movement, it's not enough either. That's not what we want, however - we think free movement should stand. That's the point.

If, however, you want to target the one area that seems to be of the most concern to the UK with respect to EU migration - the low-wage sector - then 100,000 over four years matters. This number will be largely at the low-wage end of the labour market - since these are the workers that claim significant amounts of in work benefits. In other words, as we've said all along, this is a targeted policy, intended to take away the de facto taxpayer-backed subsidy to perform low-paid jobs which does not exist in most other EU countries.

It's impossible to put a firm number on how many people will decide not to come due to this measure. We've provided plenty of figures showing how this would take away the incentive in many cases to move from a minimum or an average wage in some parts of Europe to a minimum wage in UK, using in-work benefits as effective top-up, in turn making the move financially attractive in the first place. In other cases the de facto income gap between the sending state and the UK will be massively reduced.

Taken together, and as anyone who has moved across borders will know, changes in the cost of living in the country of destination will feature in any decision to make the move in the first place. Perhaps not in a detailed spreadsheet kind of way, but it does clearly feature.

The volume dimension is one part of the the package - and it shouldn't be over-stated. However, it certainly shouldn't be under-stated either. Unless, of course, you want to end free movement. 

Cameron's speech: The response (so far) from around Europe

The big speech has been delivered - you can read our response here, but below we round up the reactions from around Europe - remember, the changes Cameron set out today based on Open Europe's research will require agreement from other EU leaders.

European Commission

A Commission spokesperson said after the speech that:

"These are UK ideas and they are part of the debate. They will have to be discussed without drama and should be discussed calmly and carefully."

This is a welcome shift from the dark days of Viviane Reding and Laszlo Andor.

Germany

No German politician has been brave enough to put their heads above the parapet yet but the German media headlines aren't exactly helpful:

Spiegel online goes with “Demands to Brussels: Cameron blackmails the EU”, ARD’s headline is “Cameron's demands: EU membership is only conditional”, Focus titles their article “With these demands Cameron blackmails the EU”.

This list could easily be continued -the actual substance of Cameron’s speech has been crowded out in most parts of the German media landscape. We suspect that might change though when it becomes clearer that Cameron may just have saved free movement. 

Poland

As we saw with the Polish Ambassador's response to our report on Monday, this is a delicate issue, with Warsaw ultra-sensitive to any measures that are seen as "discriminatory". Cameron wisely prepared the ground by discussing his speech with Polish PM Ewa Kopacz whose office today issued a statement which which argued that:

"Poland will not agree to changes undermining the principles of the EU's single market, specifically the free movement of people... which should as such be maintained in its current form."

This can be seen as a holding position - the Polish government is holding its cards to its chest although former Polish Europe Minister Mikolaj Dowgielewicz was more forthright, tweeting that:

"Cameron's plan will definitely not pass in its entirety at the ECJ. But this will already be after the UK elections. Weak response by the Commission." 

Czech Republic

The response by the Czech Europe Minister Tomas Prouza is the toughest we've seen so far - he suggested that Cameron wanted to tax people differently according to their nationality - even though tax credits is a cash subsidy and are not correlated to tax paid. He also tweeted a picture of Czech WWII pilots who fought in the RAF pointing out that they hadn't "worked" in the UK for over 4 years.

Most EU leaders seem to be holding fire though. Plenty of other reactions to come no doubt...

Cross-party consensus developing in favour of OE's proposals for free movement reforms

Deputy Prime Minister Nick Clegg has today said he wants EU migrants to be blocked from accessing the new Universal Credit – which includes income-based jobseeker’s allowance, employment and support allowance, income support, child tax credit, working tax credit and housing benefit – until they have worked in Britain for six months: the benefit would then only be payable for a maximum of six months.

This echoes Open Europe’s proposal that EU migrants should only have access to these benefits after a certain residence period, but that the principle of free movement should stand.

Mr Clegg has also suggested that he wants to permanently restrict the access of migrants to in-work benefits like tax credits, saying they should only be paid to people working the equivalent of a 35-hour week on the minimum wage: a threshold of £227 instead of the current £153.

Writing in the FT, he argues that:

As we streamline our welfare system by combining a range of benefits in a single Universal Credit, we should make sure that only migrants who have worked and contributed can receive the support. New jobseekers should not be eligible. Applying the same principle – that support should be reserved for migrants who are paying something into the pot – we should look at increasing the earnings threshold for in-work benefits such as tax credits. EU migrants could, for example, be required to work the equivalent of full-time hours on the minimum wage in order to qualify.

Meanwhile, Iain Duncan Smith has told MPs that  EU jobseekers will not be able to claim Universal Credit and that access to in-work benefits "will be negotiated" within the EU.

There are two interesting things about this. First, following OE's first pamphlet on this a month ago, there now appears to be cross-party consensus on the need to re-write the rules around in-work benefits - minus Ken "party like its 1992" Clarke, of course.

Secondly, this is a blessing and a curse for Cameron. The former because it boosts the chances of getting stuff done in Europe. The latter, because he does need to differentiate himself somehow from the others and he needs to announce something "new"in his forthcoming speech.

Labour turns its attention to restricting EU migrants' access to in-work benefits

Iain Duncan Smith's opposite number, Labour's Rachel Reeves, has written an interesting piece on EU migrants' access to welfare for the Mail Online, in which signals an important shift in Labour's policy.

Last week we noted that IDS had set out that he wanted to restrict EU migrants' access not simply to out-of-work benefits but also in-work benefits such as tax credits - something that our Research Director Stephen Booth and LSE Professor Damian Chalmers proposed in a recent Open Europe pamphlet.

Reeves sets out three proposals to reform the EU rules on access to welfare. Firstly:

"We believe that it is right to extend the period that EU jobseekers need to live and support themselves in the UK before claiming out-of-work benefits from three months to two years."

This had been hinted at by senior Labour figures before. But, for the first time, Labour have said they also want to address in-work benefits:

"We must also look at the role of in-work benefits. It is far too easy for employers in Britain to undercut wages and working conditions by recruiting temporary workers from elsewhere in Europe on very low pay and with no job security, knowing that the benefit system will top up their income." 

"So while some have said that we cannot negotiate changes to benefits paid to people in work, I am determined to look at how we can deliver reform in this area too."

As we have noted before, restricting access to this low-wage welfare supplement could reduce the incentive to migrate to the UK for the lowest paid jobs as the UK's system of in-work benefits can make a significant difference to the incomes of the lowest paid.

And thirdly, Reeves has said:

"We will work with European countries to end the absurdity of child benefit and child tax credits being claimed for children living in other countries."

This is near unanimous consensus among all the main parties on this point.

The change in stance on in-work benefits is significant and would have the biggest impact, and it is therefore interesting why this wasn't given top billing in the article?

IDS sets out broad strokes of reforms to EU free movement

The Telegraph has an interesting transcript of an Iain Duncan Smith interview with LBC Radio, which outlines the Government's current thinking on EU migration and which might signal the types of reforms that David Cameron is weighing up before delivering his promised speech on immigration in the aftermath of the Rochester and Strood by-election.

Here's what the Work and Pensions Secretary said, following this week's European Court of Justice ruling on access to benefits:

"This is about people who want to enter a country and have no prospects of work and are not intending to work, so that is stopping and shutting the door to them as we have done." 

Essentially, IDS says that the ECJ's ruling runs with the grain of the domestic changes the UK has already made to restrict access to out-of-work benefits. But he is clear that he wants to go further:

"The next problem is people who come to work, and then can claim full tax credits even though they have made no contribution. And that is the point I am making... countries shouldn’t have to do that. They shouldn’t have to support people who are coming over here, who have made no contribution." 

This is very much along the lines of what our Research Director Stephen Booth and Professor Damian Chalmers proposed in their pamphlet on EU migration and national welfare systems - a re-write of EU legislation to enable national governments to restrict access to non-contributory benefits for up to three years.

And, thirdly, IDS suggests that:

"And the third area which you talked about…is that the issue around freedom of movement isn’t that you don’t want to stop freedom of movement, but what you want to be able to say is: ‘sometimes there are limits that communities can absorb people and the pressure on public services and housing and stuff like that’." 

"European rules need to take recognition of the pressure that puts on local communities, and that’s really part of the negotiation."

This last point is perhaps the most interesting as it suggests that the option of some form of 'emergency brake' on EU migration is still under consideration.

As we have said before, there are many ways in which such a mechanism could operate, and it might just be negotiable, although this would be a much taller ask than reforming the rules around access to welfare.

EU migration - a deliverable proposal for reform

As we already noted here, today we published a new pamphlet by Professor Damian Chalmers of the LSE and our Research Director Stephen Booth.

The basic question the authors ask is, in the current political climate, how in the world can we ‘save’ EU free movement? As we’ve stated repeatedly, Open Europe thinks that the single market – including free movement of workers – remains a clear net benefit to the UK and EU. However, like everything else, it needs to be subject to up-to-date, clear and fair rules to make sure it stands.

Therefore, the pamphlet argues that instead of reaching for “quotas” or a “points-based system”, Cameron should focus on the “pull factors” – who can access what benefits and when – which if done right, will have a big impact but without ending the basic free movement principle (a red line to Merkel and others).

Chalmers and Booth – both writing in a personal capacity - argue that national governments should be able to limit EU migrants’ access to out-of-work and in-work benefits, social housing and publicly funded apprenticeships until after three years. EU citizens would have a right to access public healthcare within their host country, but, for the first three years, the costs would be borne by their state of nationality and, insofar as there was a shortfall, through private health insurance that they were required to purchase. Children of an EU citizen would have a right to access childcare and primary and secondary education. The changes wouldn't be retroactive but only apply to future EU workers.

This could be done through EU legislation and avoid a treaty change to the totemic EU principle of free movement. But it needs to be recognised that, while it often comes with overall net benefits, free movement does have an impact, particularly at the low-skilled / low-income end of the job market where the competition between school/university leavers, those moving from welfare into work and migrant labour can be fierce, with the consequent knock-effect this can have on wages.

The length of the qualification period can be discussed and needs careful thought to strike the right balance between incentive to work and ability to live.

The proposal could kill three birds with one stone:

First, it would remove the effective “subsidy” to EU workers who perform the lowest-paid jobs in the UK by removing the state top-up to low wages. For those thinking of coming to the UK, this could certainly change their cost/benefit calculation before they make the leap. It would create a fairer system, which could well have an impact on numbers and boost public confidence in free movement.

Secondly, and just as importantly, it would hand back an important public policy tool to national governments. If welfare (out of work and in work) is not open to EU migrants, national governments can better target their policies at their own citizens – helping the young with publicly-funded apprenticeship or those coming of welfare with income top-ups. The effect of these policies is blunted if they open to people across the entire EU.

Thirdly, unlike ideas for quotas or caps on EU migrants, it leaves the basic principle of free movement of workers intact, while not requiring a complicated EU treaty change.

Finally, because of that, this proposal could win support in other capitals, including, importantly, Berlin.

We will soon be publishing further research looking at the economic impact these and other potential proposals could have on EU migrants considering coming to the UK – and to what degree removing access to welfare for three years might act as a disincentive to those migrants who would be coming to working in the UK on the lowest incomes. We'll also look at other areas such as minimum wage. However, also, we’ll investigate the trade-off this involves in terms of the UK’s overall wealth and competitiveness, for which EU migrants no doubt play an important part.

Everyone take a deep breath: suggestions Merkel ready to accept Brexit following free movement row are wide of the mark

Der Spiegel reports that German Chancellor Angela Merkel warned David Cameron at last month’s EU summit that she would no longer try to keep the UK in the EU if Cameron sought to impose quotas or a cap on workers from other EU countries, as opposed to changing the rules around EU migrants’ access to benefits. The magazine also reported that the German Chancellery and Foreign Ministry fear that, for the first time, Cameron is pushing the UK towards a “point of no return” in terms of its EU membership and that a UK exit is “possible”. But there’s no reason to be get overly excited though.

• This was a report from one magazine which didn’t include any direct quotes from Merkel, but merely quoted unnamed sources. Moreover, as Sky News' Faisal Islam points out, the report isn't exactly front page either... its on page 36 of the print edition.
• The reported comments were specifically about reports in the UK media about Number 10 possibly considering putting outright caps on the number of EU migrants who can come to Britain to work, either via quotas or a points-based system. So one speculative media report leading to another.
• As we’ve argued repeatedly, there are two elements to free movement: volume – how many EU migrants come to the UK every year. And fairness: who can access what benefits and when. That Merkel doesn’t support an end to the basic right for EU migrants to come to the UK to work isn’t surprising at all. It’s been the German government position for ages. Stefan Seibert, Merkel’s spokesperson this morning re-stated Germany’s commitment to “the general principle of free movement”.

However, within that there’s a lot of scope for change and plenty of EU reforms that could fly in Berlin. Remember, the Bundestag will this week vote on a number of proposals aimed at tightening EU migrants’ access to benefits, including re-entry bans for those migrants that abuse of the German welfare system.

It’s interesting that since the stories in the UK media about a points-based system or quotas for EU migrants, FAZ and the Sunday Times note that the UK government is now looking to make its EU free movement proposals “Germany-compatible”. Also, UK Chancellor George Osborne told the BBC this morning,

“It was never envisaged that you would have such large numbers of people coming, people coming who don’t have job offers, people who move on to our benefits system…We are going to do this in a calm and rational way, but the British people want this addressed.”

The “job offer” part is interesting – the right to move to another EU country without a specific job offer hasn’t always been there. However, note there’s nothing about a cap – what the Der Spiegel report was about.

Similarly, at Downing Street’s briefing to journalists today, Cameron’s spokeswoman said:

“When the founding fathers established the European Union and introduced the principle of free movement, it was about labour and how you integrate the countries of the single market. The mass migration that we have seen with new countries joining, the impact on countries like the UK, the free movement to claim benefit – these are areas that have evolved and need to be addressed.”

There’s the point about wider “impact” but, again, the main focal point is benefits.

Which may suggest that No 10 remains primarily committed to looking at “fairness” – not actually ending free movement per se.

So only tweaks then? Not at all. Open Europe has today published a new pamphlet by Professor Damian Chalmers and Open Europe Research Director Stephen Booth which argues that the basic right to go and work anywhere in the EU should stand – on the whole, free movement remains a clear benefit to the UK. However, national governments should be able to limit EU migrants’ access to out-of-work and in-work benefits, social housing and publicly funded apprenticeships until after three years.

Incidentally, Der Spiegel did not claim that Merkel was now ‘ready to accept’ the UK exiting the EU, as some UK media outlets have reported. Instead, she now considers Brexit “möglich”, which translates as “possible”, which is more along the lines that it is something she fears.

In other words, whilst certainly a strong indicator of the mood music in Germany and the UK, on specific substance, this is much less of a story than the headlines suggest.

When it comes to the EU budget, the bad news just keeps on coming

David Cameron and George Osborne might be forgiven for thinking that when it comes the EU budget, it never rains, it pours. Fresh on the heels of the Commission's explosive demand for an extra £1.7bn for this year's EU budget, the ONS' annual Pink Book published this morning has revealed that the UK's contribution last year stood at a whopping £11.27bn - much higher than the £8.6bn the Treasury had forecast (see page 14 of this HMT document) and a 32% increase on 2012.

There are a number of reasons why there is such a large discrepancy:

• Partly this can be accounted for by the €11.2bn that was retroactively added onto the EU budget late last year (one of the European Parliament's conditions for swallowing the cut to the EU's long-term budget for 2014-2020). In addition, the growth of the UK's economy resulted in an adjustment and increase of £781m to the UK's contribution (-£190m via a separate VAT adjustment) - the same mechanism partially responsible for the £1.7bn demand. 
• Due to its strong economic growth relative to other EU member states, a situation which looks set to continue in the near future, we also warned that the UK faced an 'EU stealth tax' via higher GNI, VAT and customs contributions.
• We warned last year following the landmark budget cut that the UK might yet end up paying more in net terms due to Tony Blair's rebate cut and a larger share of EU funding going to new member states but the latest developments (the surcharge + stronger relative economic performance) risk pushing this up even higher.

Needless to say, this will only crank up the pressure on the government which is already in a difficult position vis-a-vis the EU budget, EU free movement and the European Arrest Warrant and will make it even harder for David Cameron to give any ground on the £1.7bn surcharge. 

Britain's £1.7bn budget bill: Who is to blame and what happens next?

Cameron has promised to invoke the spirit
of Thatcher over the EU budget

As EU leaders were agreeing the final details of the EU's new energy and climate change policies on Thursday evening, the FT's Alex Barker dropped the bombshell that the UK had been asked by the Commission to pay an extra £1.7bn surcharge into this year's EU budget. It was clear Cameron had not been expecting this and he angrily accused the Commission of a stitch-up, and refused to pay by the December 1 deadline.

By now, several explanation pieces have been published but there is still some confusion so here is one more try from us to clarify the situation:

Where did the demand come from?

There are effectively two things going on here, lumped together: the standard, annual revision of national contributions to the EU budget, and a one-off recalibration of the way in which national statistics authorities measure the size of their economies, going back several years. It is the combination of the two that have created a “perfect storm” for the UK:

1) Annual adjustment: Every year the EU member states and Commission work out respective national contributions to the following year's EU budget, once the actual economic data for the year in question is available. Member states' contributions can be revised upwards or downwards based on the performance of their economies. EU rules state that:

"The Commission shall inform the Member States of these adjustments in time for them to enter them in the account... on the first working day of December of the same year."

As David Cameron has rightly pointed out, these revisions are usually minor and therefore uncontroversial.

2) Changing the way the size of the economy is measured: Eurostat – the EU’s statistical body – recently reviewed the way in which member states auditing the way in which EU member states assess the size of their economies, concluding that under agreed EU rules (ESA95), several countries haven’t estimated their economies properly dating all the way back to 2002 (1995 in the case of Greece). In 2012, Eurostat instructed member states’ authorities to re-assess the figures – and to do so before 2014 . The ONS published its revised figures in May 2014, which among other re-valued the size and contribution of the UK's charity sector, which meant that overall. the UK economy was larger than previously thought, and had therefore been underpaying towards the EU.

The large UK bill is therefore primarily due to the one-off revision applied retroactively over 12 years, though effectively rolled in with the far less controversial annual adjustment. This is where a lot of the confusion comes from.

Who knew what when – and who is at fault?

This is what the debate has now shifted to, and there is a fair amount of blame to go around; no one really had their political radar switched on.

The European Commission: People within DG Budget (the Commission’s budget department) were briefing media on Thursday and well into Friday that the changes was due to the introduction of ESA10 – basically drugs and prostitution, something which left most people perplexed, and helped to fuel confusion and outrage.

It was also clear that the politics of the hefty bill would be lethal. Of course, Commission officials can claim the robot defense that “we are only following the rules”, but the Commission has always been a hybrid between an executive and a bureaucracy – so it should have handled this with far more care (the December 1 deadline was an over-kill), although some of this can be forgiven given that we’re between two Commissions.

The UK government: The exact figures were presented on Friday a week and half ago, a week before the EU summit. But it’s been clear since May this year that the UK economy was larger than expected following the ONS' revisions – indeed, the UK government itself triumphantly pointed this out. It’s also been clear for some time that other key countries were going to revise their figures. So while no one knew the full picture until 1 ½ week ago, different parts of the Government, including the Treasury, knew earlier a higher bill would be coming, albeit not the exact size. Perhaps the Government hoped this could have been snuck through somehow.

David Cameron: Probably hadn't been briefed until just before the EU summit but chose to adopt a very tough position, leaving himself limited room for manoeuvre. Some say this is a manufactured row to distract from other pressing EU issues like the European Arrest Warrant and EU free movement – a convenient row in which Cameron can ‘stand up to Brussels’ and claim some sort of success. We very much doubt it however,

What are Cameron’s options?

Cameron has effectively promised not to pay by 1 December and not to pay a bill “anywhere near” the £1.7bn mark – he restated that position yesterday in the Commons. So it’ll be hard for him to climb down. At the same time, the annual adjustment is supposed to be automatic – not subject to a separate vote – and the new calculations have already effectively been signed off by the ONS, so Cameron’s practical options are limited:

Rally a coalition to block the change: As a result of the extra €9.528bn that the EU will get due to the revisions, it is cutting the budget by €9.948bn - a net cut of €420m, and the Commission has tabled a draft amending budget to implement these changes. This budget will be subject to a vote among member states and as we set out here, the UK and other net losers have a blocking minority. However, rejecting the amending budget would mean the UK actually paying more (€3.6bn as opposed to €2.1bn), but the flipside would be that almost every member state would pay more too - rather than a €1bn rebate for France and a €779m one for Germany, they would face bills of €562bn and €1.4bn respectively - this could give the UK some leverage, although it could also backfire.

Seek revision of figures: Cameron has said he will launch an "exhaustive" review into the methodology that was used, effectively challenging the basis for the calculations. The figures aren't exactly transparent – and maybe this process will expose something they can run with and muster political support around. It's complicated by the fact that the ONS itself signed off on the underlying figures.  

Unilaterally revise the figures: The UK could check if the ONS went further then it needed to in revising past economic performance under ESA95, and if so, revise its figures again.

Go to court: It is not clear whether the UK would have any grounds for taking the Commission to the ECJ but one potential avenue would be to challenge the retroactive aspect of the bill as well as its unprecedented nature. Either way, it could bog down the process and buy Cameron some much needed breathing space in which to work on alternatives.

Refuse to pay: That could well trigger a crisis However, and the worst-case scenario is that the UK will face potential fines and infraction (see here for the figures).

Veto unrelated EU measures: It has been suggested that the UK could play hardball by vetoing other EU measures such as changes needed for the Eurozone to integrate further- but there are no such measures imminent over which the UK has a veto.

Ultimately, because the money is not needed for the 2014 budget per se, the issue could be kicked into the long grass, allowing for a face-saving compromise to be agreed. Speaking in the Commons yesterday Cameron sounded pretty confident that something can be done. We hope he’s right.

The Farage Paradox part II: Support for EU membership at highest level since 1991

Back in May, we pointed out the so-called 'Farage Paradox' - even as the party came first in the European elections in the UK and Farage himself was widely seen as having bested Nick Clegg in their TV debates, support for leaving the EU had fallen to its lowest level for a long time according to Ipsos-MORI with 37% in favour of Brexit and 54% in support of staying in.

A few months later and UKIP is still riding high in the polls with a victory in the Clacton by-election under its belt and with the Tories on the run in Rochester and Strood - amid all kinds of noise around EU migration. However, on the wider EU question, support for membership has climbed even higher - today's Ipsos-MORI poll has support for membership at 56% - its highest since 1991!! - with support for leaving on 36%.

It's not entirely easy to nail down the drivers behind the trend - even the UK's public defeat over the appointment of Jean-Claude Juncker as European Commission President hasn't reversed it but one possibility could be that as the prospect of exit becomes more real, especially in the wake of the Scottish referendum, people are more likely to go with the 'better the devil you know' option. Another explanation is that Farage is good at stirring up support in concentrated parts of the country, but his divisive rhetoric turns others off. A feel-good factor over the economy (through as we've argued before, this can cut both ways) combined with increased uncertainty around the world - making the status quo look safer and club membership more attractive - could be other reasons.

Either way, it shows that even as UKIP find a way of tapping into disenchantment with the EU and mainstream UK politics, they are failing to convince  people that they have the right remedies and this risks derailing the broader 'out campaign, as the pro-Bexit Tory MP Michael Fabricant has warned:

"The out team will be very different, with no leader who commands popular support. Before you can even make the case for Britain becoming a mid-Atlantic economic hub, freed from the shackles of Brussels diktats, the Eurosceptics will be all over the place. No clear leader, and angry looking grey men who have been arguing the toss on Europe for years, will fail to impress. Yes, Nigel Farage is clearly the most charismatic Eurosceptic in years, but does anyone really imagine Farage being the Alex Salmond of the out campaign? Would he be persuasive enough to seduce a nation?"

However, it is worth bearing in mind that other polls have slightly different outcomes. Today's YouGov poll for the Times' red box showed lower levels of support for EU membership - support for membership is roughly the same under their 'major changes' scenario as under Ipsos-Mori's status quo scenario (YouGov's status quo option assumes renegotiation was attempted but failed to secure even modest changes, so can't be directly compared with the Ipsos-MORI one).

This shows that even if some polls suggest a majority of Brits would vote to stay in no matter what, EU reform and renegotiation remains by far the best option for any UK government. 

As has been noted before, that's why some Better Off Outers are now starting to fear that long sought after In/Out referendum - in itself an ironic development. 

Barroso lets his hair down - and British media loves it

Would the UK have zero influence outside the EU? 

Outgoing European Commission President José Manuel Barroso is in London, and he has made a few interesting remarks about the Tories, Brexit, EU free movement and Grant Shapps. Wading into the most intense debate on EU migration in the UK since 1066, he has really hit the headlines. 

However, Barroso no longer has any real say over decisions in the EU - it's Juncker's show now, and he has made addressing the UK's concerns a key priority, although it remains very much an open game. Also, remember, the bulk of Cameron's renegotiation won't be with the Commission - it'll primarily be with member states (though having the Commission on-side will certainly help). 

In any case, Barroso told the BBC's Andrew Marr Show yesterday:

"So far the British government has not presented a proposal, a concrete proposal [on reform of EU free movement rules]. There are ideas floating, there are rumours. I cannot comment on specific suggestions that have not yet been presented. What I can tell you is that any kind of arbitrary cap seems to me to be not in conformity with the European rules."

Barroso is of course right - restricting the number of EU workers coming to the UK, via quotas, would be illegal under EU rules - as we argued in our recent flash analysis and most people agree on. The question is whether changes to these rules are possible - this is a big discussion which we've looked at here. However, Barroso also tried to strike a more conciliatory tone when he stressed that there are "widespread concerns in the UK and elsewhere about abuse of free movement rights" and further changes could be made to address them, although "changes to [EU migrants' access to benefits] need all countries to agree."

Barroso had some less well-targetted comments, claiming for example, that the UK would be "irrelevant" and "have zero influence" outside the EU, while also appearing to link EU membership to Cameron's ability to fight the Ebola virus.

At an event this morning, Barroso was also asked about remarks made by Conservative Party Chairman Grant Shapps, who was sent out yesterday to dismiss Barroso's comments, calling the outgoing European Commission President “an unelected bureaucrat”. Barroso - now clearly free to let his hair down - went all in:

“Since I was 29 years old, I was elected in my country…I don’t know who this gentleman is, but certainly he has not more democratic legitimacy than I have.” 

Which begs the question, if Barroso doesn't know who Shapps is, how can he comment on the man's electoral record? Anyway, it allowed the Tories to play the 'we stand up to Brussels card'.

What are David Cameron's options on EU immigration?

Following reports that David Cameron is considering a new announcement on how he would renegotiate EU free movement, potentially considering an "emergency brake", we have set out in a short briefing what his potential options are.

Here are the key points:

The debate about internal EU migration has two dimensions. Though inter-linked they should be treated separately. “Fairness” – who can access what benefits and when; and “volume” – how many migrants come to the UK every year. David Cameron is reportedly considering moving from addressing fairness to making a demand to curb the numbers of EU migrants to the UK.

There is substantial support at the EU level to give national governments greater control over access to their welfare systems and doing so would not require treaty changes but a qualified majority vote among governments and the agreement of the European Parliament.

Any move to limit the numbers of EU migrants coming to the UK would most likely require treaty change (with the possible exception of an ‘emergency brake’) and therefore the unanimous agreement of other EU governments. It is currently unclear what exactly – if anything – Cameron might ask for on volume, but he may have three broad options, which in order of increasing difficulty to secure EU agreement are:

1. An ‘emergency brake’ triggering temporary controls on EU migration if the flow is considered ‘destabilising’, too large and/or concentrated;
2. Permanent quotas on EU migrants;
3. A points-based system, similar to that which exists for migrants from outside the EU, differentiating between “skilled” and “low-skilled” migrants.

There are a number of questions around how an ‘emergency brake’ could be organised practically, but if this is David Cameron’s top EU negotiating priority he may just achieve it, given that there are precedents for brakes in other areas in the EU treaties and there is increasing awareness across the Continent that public concern about free movement is contributing to the EU’s unpopularity.

Whatever the merits of the proposal, as a domestic political strategy, it is unclear whether an ‘emergency brake’ would be enough to see off UKIP – as Cameron could still be accused of failing to secure full control over Britain’s borders and migration policy – although it may reassure 'swing voters'. Therefore, Cameron risks spending a lot of political capital abroad for limited political return at home.

Securing either option 2 or 3 would be an extremely difficult task as it would involve fundamentally rewriting the EU treaties and unpicking one of the founding principles of EU membership. There is likely to be little or no political appetite for such a move among other EU countries. The Swiss experience shows that, even outside the EU, measures to limit EU migration could result in threats from Brussels of reduced trade access to EU markets.

This is not to say that EU rules on free movement can ever be changed, but rather that this is one area where Number 10 will find it hard to get away with creating the headline first, and the content later. Given the domestic sensitivity of the issue and how deeply it strikes at the heart of existing terms of EU membership, successfully negotiating change requires a well thought out plan that has domestic and European level buy-in.

Between The Rock and a hard place: Spain threatens to shut UK out of EU crime databases

The WSJ reports today that Spain is using its dispute with the UK over Gibraltar to hold up/block the UK's re-entry into a number of EU crime and policing laws. 

To recap, the UK has already decided to exercise its block opt-out of over 130 EU crime and policing laws and, at the time, it was announced that the Government would like to opt back into around 35 of them - but it can only do this after exercising the opt-out. The opt-out takes effect on the 1 December, so time is running out if the UK wants a seamless transition.

For the record, we have long urged the UK Government to use this opportunity to negotiate bi-lateral or intergovernmental cooperation outside the auspices of the ECJ, which these 'opt-ins' would fall under for the first time (i.e. they increase the power of the EU institutions over the 35 laws). Any fundamental rethink has seemingly been shelved for now (partly due to the constraints of Coalition) but Justice Minister Chris Grayling and Theresa May have indicated this will be part of a Tory renegotiation.

For the vast bulk of these 35 laws, including the controversial European Arrest Warrant (EAW), the European Commission is responsible for admitting the UK back into these arrangements and, in July, the UK reached agreement with the European Commission on re-entry. However, there are handful which require unanimous agreement from other national governments before the UK can re-enter. These mainly cover data-sharing arrangements related to the Schengen agreement, which are used to share data on wanted criminals, terrorists, etc, which the UK wants access to.

What does this mean? Well it's all getting extremely tight for time - the Government has promised a vote in Parliament on the 35 opt-ins, which is unlikely to be plain sailing by any means with many Conservative MPs opposed both in principle and on the detail of some these laws, the EAW in particular. The UK could conceivably opt back in to just those laws the Commission has agreed to, while negotiations on the remainder continue (Spain reportedly thinks the UK should opt back into a few more EU laws as part of the package). However, this would mean the UK had no access to security databases at a time when the threat of terrorism is high and, less importantly, only draw out a parliamentary process that is already likely to be uncomfortable for the Government.

In all likelihood a last-minute deal will be done, not least because other member states have all signed up to the agreement with the UK and are just as frustrated that Spain is using an unrelated bilateral dispute to potentially disrupt important EU cooperation on terrorism. Still, it looks like Spain is going to make this as uncomfortable as possible for the UK, and Conservative ministers will be under huge domestic pressure not to give into Spain's demands.

What would a British withdrawal from the ECHR mean for its EU membership?

Justice Minister Chris Grayling has today announced that a new Conservative Government could pull Britain out of the European Court of Human Rights in Strasbourg unless it secures Council of Europe agreement that the UK Parliament has the final say over its rulings. Grayling wants to ensure that the UK Supreme Court is the “ultimate arbiter of human rights matters”.

Under the plan, the Conservatives would repeal Labour’s Human Rights Act and put the text of the original Human Rights Convention into a new British Bill of Rights.

Parliament would be asked to vote every time the Strasbourg court judged that UK law was incompatible with the European Convention on Human Rights, and the judgment would be binding only if MPs agreed it should be enacted. A future Conservative government would try to negotiate with the Council of Europe, which oversees the convention, but if no agreement could be struck, they say the UK would be “left with no alternative” but to withdraw.

So is this compatible with the UK’s EU membership?

It is by no means certain that this plan would inevitably result in Britain withdrawing from the Convention. But, if this were to happen, Grayling has insisted that the plans are consistent with EU membership. Nevertheless, it is clear that the growing links between the European Convention on Human Rights and the EU makes the matter complicated.

All EU member states have ratified the convention and being a signatory of the convention has effectively become a pre-condition for new countries seeking to join the EU. However, there is no formal requirement in the EU treaties binding on existing member states such as the UK to remain signatories of the convention.

Article 2 of the Treaty on European Union states that the Union is founded on “…the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities...” Elsewhere the EU treaties state that:

“Fundamental rights, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and as they result from the constitutional traditions common to the Member States, shall constitute general principles of the Union's law.”

Neither of these EU treaty clauses appear to be incompatible with UK withdrawal from the convention and remaining a member of the EU. If the UK were to withdraw, there would certainly be much political fallout and, in theory, other EU member states have the power to suspend the UK Government’s EU voting rights if they unanimously “determine the existence of a serious and persistent breach” of these values. But it would be hard to argue that UK withdrawal from the convention would be a breach of these values in itself – particularly given the commitment to enshrine the convention in domestic law.

Would the UK remain bound by EU human rights law?

The short answer is yes - when applying EU law in the UK. Even complete withdrawal from the convention would still mean that the UK would continue to be bound by the EU’s Charter of Fundamental Rights (which basically replicates the ECHR) and the EU Court of Justice’s interpretation of these rights as they apply to EU law, which in turn is either implemented in UK law or has direct effect. The ECJ’s ruling that insurers could no longer determine their premium on the basis of gender is a prime example.

A further complication is that the Lisbon Treaty gives the EU the legal basis to join the convention in its own right. This could see the European Court of Human Rights court ruling on EU laws which apply in Britain and greater use of the convention by the EU Court of Justice. New European Commission President Jean-Claude Juncker has said he would like to see the EU accede to the convention under his term, but it is important to remember that the UK retains a veto over EU accession to the convention and the logical position would be to use it.

David Cameron and his Ministers continue to tread fine line on EU migration reform

UPDATE: The Prime Minister has now given his conference speech. This is the passage on EU migration:

"Immediate access to our welfare system, paying benefits to families back home, employment agencies signing up people from overseas, not recruiting here, numbers that have increased faster than we in this country wanted and at a level that was too much for our communities and for our labour markets. All of this has to change and it will be at the very heart of my renegotiation strategy for Europe. Britain: I know you want this sorted, so I will go to Brussels, I will not take no for an answer and when it comes to free movement I will get what Britain needs."

So, no new policy announcement today. However, David Cameron's reference to the "numbers that have increased" and "at a level that was too much for our communities" leaves the question we posed below hanging. He could argue that tackling migrants' access to benefits (particularly in-work benefits) will help with the numbers, as it could reduce the incentive for some to migrate, particularly those at the lower end of the job market. Will he be prepared (or be allowed) to stop there?

Original post: The Times and the Mail today both feature stories on the increasing pressure on David Cameron to take a stronger stance on migration from the EU.

The Times suggests that senior figures within his party are calling on him to use his renegotiation to explore the introduction of quotas on migrants from existing EU member states. It quotes London Mayor Boris Johnson saying that

“We all want change, we all want a renegotiation. We want sensible control of the numbers of people coming in. I think you would agree that it is the right and duty of every state to have some idea of how many people want to settle in its boundaries, what jobs they propose to do there, and how much they cost the local authorities. Isn’t that fair enough?”

As we have noted before, the free movement debate is about fairness and volume. So far, David Cameron and his Ministers have concentrated on the former - rules on migrants' access to benefits can be changed through secondary EU legislation via QMV and co-decision with MEPs and there is widespread support for addressing the issue among like-minded countries in Northern Europe. David Cameron is also on the record saying that he wants new conditions placed on migrants from countries that join the EU in future. However, the latter issue, addressing the numbers of migrants coming from existing EU member states is much tougher - it means addressing what is seen as a fundamental tenet of the EU and altering it would require unanimous agreement, almost certainly via treaty change.

Home Secretary Theresa May and Foreign Secretary Philip Hammond have both been quoted on the subject today, but both have stuck to line that an 'emergency brake' or measures to tackle the numbers of migrants would apply to new members of the EU, not existing ones.

May said:

"This is an area where David Cameron and I have said we need to look to the future to talk about the rules, particularly for countries coming into the EU in the future, and putting some sort of brake on their access to full free movement. For example, one idea we’ve suggested is they shouldn’t have full free movement rights until their GDP, their economy, is at a certain level compared to other economies within the EU."

Similarly, Hammond told an Open Europe fringe event that:

“It isn’t going to be enough just to look at benefit abuse...We are going to have to look at how we accommodate future new member states with the implementation of free movement, future new member states and how we restrict them. We are going to have to look at how we deal with destabilising flows."

There has been speculation that Cameron will address the issue in some way in his conference speech today, it will be interesting to see how he treads what is an increasingly fine line.

Fact check: Can we take Danny Alexander's "3 million jobs" threat seriously?

In June, Liberal Democrat Chief Secretary to the Treasury Danny Alexander said that, according to Treasury analysis, more than three million British jobs would be at risk if Britain left the European Union. This is what he said:

“Indeed, the latest Treasury analysis shows that 3.3 million British jobs are connected to Britain’s place in Europe. That is the measure of the risk that isolationists would have us take.”

What new analysis could this be? So we asked the Treasury. You can read the full response here, but this is perhaps the key part:

“As set out by the Chief Secretary to the Treasury, the Treasury estimate that 3.3 million jobs in the UK may be related to exports to other European Union countries. This figure is based on the assumption that the share of UK employment associated with UK exports to the EU is equal to the share of output that is exported to the EU, making allowance for the composition of the UK economy. It is not an estimate of the impact of EU membership on employment.”

The Times also reported on the FOI response today. Now, there are at least three things that are problematic with Mr Alexander's claims:

1. First of all, this is not in fact 'new' analysis. As the response to our FOI makes clear, Mr Alexander's remarks were based on the following methodology, which has been used and cited countless times before. In 2003, Ruth Kelly told Parliament that:

"The Treasury estimates that 3 million jobs in the UK are linked, directly and indirectly, to the export of goods and services to the European Union. This figure is based on the assumption that the share of total UK employment associated with UK exports to the EU is equal to the share of total UK value added (GVA) generated by UK exports to the EU. The information necessary to apply the same method to derive comparable estimates for England, Scotland, Wales and Northern Ireland is not available."

In February 2014, Lord Livingston again confirmed this methodology as follows:

"The estimate of 3.5 million jobs linked to trade with the European Union is based on the assumption that the share of UK employment linked to trade with the EU is equal to the share of total UK value added (GDP) generated in the production of goods and services exported to the EU." 

"The calculation uses data from UK Input-Output tables to estimate the proportion of UK value-added content generated in exports of goods and services and applies this to the values of UK exports to the EU. This is then divided by total UK GDP and the resultant proportion then applied to the total UK labour force to estimate the proportion of the labour force linked to EU exports on a value-added basis."

In short, the methodology dates back more than ten years and does not seem to have been updated at all.

2. Perhaps most crucially, as the Treasury's response makes clear, this study "is not an estimate of the impact of EU membership on employment." So it is rather misleading, to say the least, of Mr Alexander to suggest that these jobs are at "risk". To say that X number of jobs are linked (directly or indirectly) to exports to the EU is clearly not the same thing as suggesting that they are dependent on EU membership. To be fair to Mr Alexander the Treasury's position on this is somewhat confused itself - it claims that this is not an estimate of the impact of EU membership on employment, however, that is exactly what the simplistic calculation and, importantly, its flawed counterfactual seem to suggest (see below). 

3. Thirdly,  is immediately apparent, it is a very simple approximation, not detailed analysis which one might have expected from HMT on such an important question. The methodology used is very simplistic, for a number of reasons:

• A flawed counter-factual: We have always stressed the importance of the counter-factual when assessing the future of the EU/UK relationship. The counter-factual here is essentially that these jobs would not exist without the EU.  This is odd for at least two reasons: first, it effectively assumes an end to all exports to Europe should the UK withdraw from the EU. We can argue about the level of market access a post-Brexit UK may be granted (we've done a lot of work on this) but one thing is clear: there will be exports from the UK to the EU under any scenario. Secondly, by definition the analysis assumes that all value added by jobs related to EU exports would not exist without the EU membership. A simple common sense check suggests that, actually many of these jobs may still produce some value even if the goods did not find their way to the EU and that the resources could be alternatively employed.
• Assumes productivity is the same across the UK economy: While it is claimed that the calculation "takes account of the composition of the UK economy" it is not clear exactly how this is done. On the surface the calculation also seems to implicitly assume that labour productivity (broadly output per worker or per hour) is the same across the entire economy (by saying the basic proportion of output corresponds to the same proportion of employment). Fundamentally we know this is not true - on the most basic level, we know that skilled and unskilled jobs will have different productivity levels. A quick glance at the most recent ONS labour productivity statistics confirms this and highlights that over the decade since this methodology was created, different sectors' and regions' productivity rates have grown in different ways. Unless this is accounted for in a detailed way in the methodology it is likely to distort the figure.

The final point above suggests that there is either some continuing lack of transparency with regards to the calculation or it really is just overly simplistic (if not both). This is all quite ironic given that UKIP and Better Off Outers in general are often criticised - and often justifiably so - for not establishing a credible counter-factual whilst relying on heroic assumptions.

Mr Alexander should know better.