EU threatens to sue UK over “benefit tourists”

The European Commission has threatened to take legal action against Britain if ministers do not water down rules limiting foreigners’ ability to claim benefits.

Ministers fear the move could leave taxpayers handing out as much as £2.5  billion to EU nationals, including out-of-work “benefit tourists”, a new cost that could wreck Coalition plans for welfare reform.

The commission’s threat, on the eve of the Conservative Party conference, has raised the political temperature on Europe still further.

In an outspoken attack today, Iain Duncan Smith, the Work and Pensions Secretary, says the commission’s move is part of a “wider movement” by the “unelected and unaccountable” European authorities to extend their power over the UK.

“This kind of land grab from the EU has the potential to cause mayhem to nation states, and we will fight it,” he writes in The Daily Telegraph.

The commission is objecting to Britain’s rules on welfare, claiming they discriminate unfairly against foreigners. To claim benefits in Britain, EU nationals must pass a “right to reside” test. The commission says the test is too tough, and wants Britain to apply more generous EU-wide rules.

The commission said it had given Britain two months to bring its rules into line with the weaker EU standard. “Otherwise, the commission may decide to refer the UK to the EU’s Court of Justice.”

The intervention has infuriated ministers, in particular because social security has long been seen as a national policy area and not one in which the EU is allowed to interfere.

It will also inflame the Coalition’s internal debate over Europe. Tory MPs, who will gather in Manchester this weekend for their annual conference, are pushing David Cameron to drive a much harder bargain with Brussels. Liberal Democrat ministers have said they will resist any move to renegotiate Britain’s EU membership.

Mr Duncan Smith’s sustained onslaught on the EU represents the most high-profile Cabinet attack on Brussels’ increasing interference in Westminster policy-making since the Coalition began. He writes: “These new proposals pose a fundamental challenge to the UK’s social contract. They could mean the British taxpayer paying out over £2 billion extra a year in benefits to people who have no connection to our country and who have never paid in a penny in tax.

“This threatens to break the vital link which should exist between taxpayers and their own government.” He added: “I sense this is part of a wider movement, coming in the same week as the proposals for a financial transactions tax across Europe which threatens to punish UK banks by decreasing their competitiveness abroad.”

The Work and Pensions Secretary is furious, fearing that his shake-up of the benefits system, which he hopes will save billions, is being jeopardised. If the legal action is won by the commission, Britain will have to pay means-tested, residence-based benefits – employment support allowance, pension credit, income support – to people when they arrive, even if they have never worked here or paid any contributions and regardless of whether they have any previous link with the UK.

Thousands of jobless from across the EU could seek to take advantage by moving to Britain at a potential cost of billions, said the Department for Work and Pensions. Chris Grayling, the work minister, said last night: “I am both disappointed and surprised that the commission seems so determined to press ahead with this legal action at a time when Europe faces enormous challenges. It is just extraordinary that they would want to go into battle over an issue that is so politically sensitive.”

He added: “As the system stands at the moment, if this went ahead, it would cost us £2.5 billion.”

If the European Court of Justice upholds the commission’s view, economically inactive people will be able to move between EU member states just to claim benefits, without any intention of working or contributing to the member state’s system. They could then use those benefits to acquire the right to reside there. Mr Grayling has been gathering support, including from Germany and France, to oppose the move, but this week’s decision to press ahead with a legal action shows that any lobbying is proving fruitless.

The row is the latest example of Coalition ministers appearing powerless to halt the EU overturning UK policy. Last year, a European Court judgment forced David Cameron to agree to allow prisoners the vote.

At the Tory Party conference, which begins on Sunday, the Prime Minister will come under pressure from an increasingly vocal and determined group of backbench MPs.

Earlier this month, Mark Pritchard, the MP for The Wrekin, urged Mr Cameron to offer a referendum on Europe.