Legally and politically important
Not cleared from scrutiny; further information requested; drawn to the attention of the Exiting the EU Committee and the Work & Pensions Committee
Proposal for a Regulation amending Regulation (EC) No 883/2004 on the coordination of social security systems and Regulation (EC) No 987/2009 laying down the procedure for implementing Regulation (EC) No 883/2004.
Article 48 TFEU; QMV, ordinary legislative procedure
Work and Pensions
(38400), 15642/16 + ADDs 1–8, COM(16) 815
15.1The UK’s withdrawal from the European Union will have significant repercussions for the rights of citizens of both the UK and EU to access each other’s social security systems.
15.2Under the EU’s legislative framework governing freedom of movement, and in particular the Social Security Coordination Regulation (Regulation 883/2004), those who move between EU Member States are, in principle, entitled to access the local benefits system on the same basis as nationals of that country. The system of coordination covers a wide range of social security payments, including unemployment benefit, child benefit and state pensions, as well as access to short- and long-term healthcare. For example, the Regulation allows many of the 190,000 British pensioners living in the EU to have the costs of their local healthcare reimbursed by the UK Government.
15.3Brexit will, by default, end the UK’s participation in this system of coordination, both for UK nationals in the EU and EU nationals in the UK. To avoid causing serious disruption, the withdrawal negotiations under Article 50 TEU include a specific “chapter” on social security rights, under which the effects of Regulation 883/2004 would be largely maintained for citizens already resident on either side on “Brexit Day”. However, the UK and EU have yet to agree on all aspects of the social security chapter, and there are also persistent divergences on other elements of the citizens’ rights deal which must be resolved before the agreement could be ratified by both sides.
15.4This situation is complicated further by the fact that several technical, but significant, amendments to Regulation 883/2004 are currently being considered by the European Parliament and the Council. These relate to the rights of economically inactive EU nationals, job seeker’s allowance, family benefits and the right to long-term care, and the rules for deciding which Member State is responsible for employees who live and work in more than one EU country. Our predecessors described the substance of these proposals in some detail in February 2017.
15.5The Explanatory Memorandum on the proposal submitted by the Minister of State for Employment (Damian Hinds) provided little to no analysis of the potential impact of the amendments to the Regulation, either for the UK as a Member State or in the context of the Article 50 process (which had then not yet begun). The previous Committee therefore asked the Minister for further information on the Government’s position and for clarification of its plans to mitigate the impact of the UK’s withdrawal from the EU, and therefore from the system created by Regulation 883/2004.
15.6In subsequent correspondence, the Minister clarified the Government’s position on some—but not all—aspects of the proposals to amend the Regulation. His explanation referred primarily to the elements of the Regulation covered by a partial general approach adopted by EU Employment Ministers on 23 October. The Minister had requested a scrutiny waiver in advance of that meeting, which we were regrettably unable to consider due to the delays in reforming the Committee following the election. As a result, a scrutiny override occurred when the Government supported the proposals. Negotiations on the new Regulation are expected to continue into 2018. The Minister has not provided any further information on social security coordination after Brexit, and in particular the Government’s contingency planning should the current system be abruptly ended in March 2019.
15.7We thank the Minister for his letter with further information on the Government’s position on the proposed amendments to Regulation 883/2004, although we note that our predecessors’ request—made in February 2017—for a supplementary Explanatory Memorandum was not honoured. We would like him to explain why this was the case, and when we can expect a full statement from the Government on its position with respect to those elements of the proposal not covered by the Council’s partial general approach.
15.8It was regrettable that the delays in reconstituting the Committee prevented us from considering the Council’s partial general approach on the amendments to Regulation 883/2004 before its adoption, although it was acceptable for the Government to override scrutiny under these circumstances. However, given that a substantial proportion of the proposal is still being considered at technical level in the Council, there will be further opportunities for the Committee to discuss its implications. We emphasise that the scrutiny reserve remains in effect in relation to the entire draft Regulation, including on any further Council general approaches or negotiating mandates adopted by COREPER.
15.9With respect to the implications of Brexit for the social security rights of UK nationals living in the EU, we are none the wiser about the Government’s impact assessment or its contingency plans in case no deal is agreed with the EU by March 2019. It is also unclear if the “implementation period” the Prime Minister is seeking for the immediate post-Brexit period would keep the system established by Regulation 883/2004 in operation for the UK for its duration.
15.10Given the above, we ask the Minister to provide information in relation to the questions below to assist us in the scrutiny process.
15.11Based on our assessment of the proposed Regulation as set out in “Background” below, we ask the Minister the following with respect to the substance of the amendments and the Council’s partial general approach of 23 October 2017:
15.12Regulation 883/2004 and its proposed amendments are also important in the context of the UK’s EU withdrawal negotiations. Both sides have agreed that the Regulation, and future amendments, should continue to govern the coordination of social security for citizens of either side who are lawfully resident in the other on the cut-off date.
15.13On the basis of our assessment of the current state of the negotiations (see paragraphs 0.25 to 0.31 in “Background” below), we ask the Minister the following with respect to the matter of social security rights and the Brexit process:
15.14Regulation 883/2004 will also be relevant for any negotiations on a new framework for coordination of social security for nationals of the UK and EU who move between the two after Brexit (and, potentially, the “implementation period”), and as such are not covered by any Withdrawal Agreement under Article 50.
15.15In anticipation of the Minister’s reply, we retain the proposal under scrutiny. We also draw this Report to the attention of the Work & Pensions Committee and, in the context of its implications for the Article 50 negotiations, the Exiting the EU Committee.
Proposal for a Regulation amending Regulation (EC) No 883/2004 on the coordination of social security systems and Regulation (EC) No 987/2009 laying down the procedure for implementing Regulation (EC) No 883/2004: (38400), + ADDs 1–8, COM(16) 815.
15.16Each EU Member State is free to determine the features of its own social security system, including which benefits are provided, the conditions for eligibility, how these benefits are calculated and what contributions should be paid. However, national social security systems must take into account the right of EU citizens and their families to move freely and reside in any EU country. To facilitate the free movement of persons, the EU has, since the 1960s, enacted legislation to coordinate the social security systems of its Member States. The current legislation (Regulation 883/2004, referred to as the Basic Regulation) and Regulation 987/2009 (known as the Implementing Regulation) entered into force in May 2010.
15.17The purpose of these Regulations is to determine which country is responsible for the calculation and payment of social security benefits for mobile EU citizens who move between Member States, including those not in employment. The system of coordination covers a wide range of social security payments, including unemployment benefit, child benefit and state pensions, as well as rights with respect to short- and long-term healthcare for EU citizens who exercise their free movement rights. The legislation also establishes how individual workers can aggregate periods of qualifying employment in different Member States to an entitlement to benefits in one specific country. In addition, under certain conditions cash benefits such as unemployment or child benefit can be “exported” to another EU country, for example if a worker has children who live elsewhere in the EU or if an unemployed person moves to a new country in search of employment.
15.18In December 2016, the European Commission proposed amendments to the Basic and Implementing Regulation to take into account the recent case law of the European Court of Justice on the rights of economically inactive EU nationals, and to clarify the provisions on access to unemployment, family benefits and long-term care benefits. Our predecessors described the substance of the Basic and Implementing Regulation, and the effect of the Commission’s amendments, in some detail in February 2017. We summarise the main substance of the Commission proposals below:
15.19The previous Committee, having received an Explanatory Memorandum from the Minister of State for Employment (Damian Hinds) in January 2017, concluded that the proposal was of significant political and legal importance for three reasons:
15.20Since our predecessors made this assessment, it has also become clear that the Government is seeking an interim arrangement immediately following March 2019 to preserve the UK’s current level of access to the Single Market. During this period, “the existing structure of EU rules and regulations” would continue to apply, to give both sides time to negotiate and implement a new UK-EU free trade agreement. Although the exact implications of the Government’s proposals in this area are unclear (and to what extent they are compatible with the European Council’s position on a transitional arrangement), it is likely that for its duration the UK would have to continue applying Regulation 883/2004 in full. That would include these proposed amendments if they enter into force during the interim period.
15.21While the previous Committee welcomed the legal certainty resulting from the proposed codification of the “right of residence” test, they expressed their disappointment that the Minister’s Memorandum provided “little to no substantive assessment of any of the elements of the Commission’s proposal”. The Minister provided no indication of the impact the proposed Regulation might have on the structure or overall costs of the benefits system, or how EU nationals in the UK (and UK nationals in the EU) might be affected.
15.22They therefore asked the Minister:
15.23Neither we nor the previous Committee received any substantive response from the Department to these requests. No supplementary Memorandum was received, nor an explanation offered as to why not. Indeed, in a letter to our predecessors sent in March, the Minister claims that the Committee had “not asked for further information at this time about the proposal”. With respect to the Brexit implications for cross-border coordination of social security, he states:
“The Government is examining all the options you raise in your letter in relation to preserving rights under the EU social security coordination regulations, uprating pensions and planning for the possibility of no successor arrangement being in place at the point when the UK exits the EU. It would not be appropriate to comment further on this before negotiations have begun.”
15.24However, since the previous Committee considered the draft Regulation in February, there have been a number of relevant developments in both the consideration of the draft legislation and in the UK’s negotiations with the EU on citizens’ rights in the context of Brexit. We will in turn consider the substance of the proposed amendments to Regulation 883/2004, the status of the Regulation within the UK’s Withdrawal Agreement for citizens directly affected by Brexit, and the wider implications of Brexit for coordination of social security between the UK and the EU-27 in the long-term.
15.25As the Government reiterates frequently, for as long as the UK remains an EU Member State it should continue to negotiate new EU legislation to ensure it reflects the UK’s interests.
15.26EU Social Affairs Ministers, including the UK Minister of State for Employment, held an initial debate on the social security proposal at the meeting of the EPSCO Council on 15 June 2017, on the basis of a progress report prepared by the Maltese Presidency. At that stage, the Presidency had focused primarily on the equal treatment and applicable legislation provisions of the proposal; it noted that there was still disagreement on the codification of the “right of residence” test, and no general approach was tabled for a vote.
15.27On 7 August the Minister wrote to our counterparts in the House of Lords about the proposal. He explained that the Government was not conducting its own impact assessment of the Commission proposal, and did not anticipate that there would be any additional administrative burden on businesses resulting from the new Regulation.
15.28On 10 October 2017 we received a letter from the Minister explaining that the Estonian Presidency had brokered agreement among the Member States on certain elements of the proposed Regulation. This was subsequently endorsed by means of a partial general approach at the EPSCO Council on 23 October 2017. The Council’s general approach is considered “partial” because it only establishes the Council’s position on two out of the five main elements of the Commission proposal (equal treatment and applicable legislation), while discussions at technical level continue with respect to the other three (entitlement to unemployment benefit; long-term care benefits; and salary-related family benefits). As such it represents only limited progress in agreeing on the necessary changes among the Member States, even before negotiations could take place with the European Parliament on the final text of the Regulation.
15.29In terms of substance, the partial general approach adopted by the Council seeks to remove the Commission’s proposed codification of Court of Justice case law related to equal treatment and restrictions on access to non-contributory benefits for EU citizens. Because Member States could not agree on the scope of the codification (and in particular access to which types of benefits could be restricted under the judgement delivered in Commission v United Kingdom), the Estonian Presidency proposed to maintain Article 4 of the Regulation unamended. With respect to the Commission proposals on which Member State is responsible for the provision of social security, the Council reached agreement on the mechanism for determining the applicable national legislation for air crew, posted workers and those who are employed in more than one Member State.
15.30The Government was supportive of the Presidency’s proposals, and although the Minister’s letter asks for a scrutiny waiver from the Committee to enable the Government to support the partial general approach at the meeting on 23 October, the delays in appointing members of the Committee meant that we were unable to consider the proposal and the Minister’s request in advance of that meeting. As a result, a scrutiny override occurred when the Government endorsed the Presidency text.
15.31Given the state of the legislative procedure, it appears certain that discussions on the new Regulation will continue for the remainder of 2017 and are likely to stretch into 2018. To aid our scrutiny of the proposal in the coming months, we have asked the Minister a number of questions in relation to its substance (see paragraph 0.11 above). It is unclear what the European Parliament’s position on the amendments to Regulation 883/2004 will be, and whether they are in line with the Council’s partial general approach. The Parliament’s Employment & Social Affairs Committee is expected to vote on the draft Regulation on 27 November 2017.
15.32This legislative proposal—and the contents of Regulation 883/2004 more generally—are also important in the context of the UK’s EU withdrawal negotiations. Both sides have agreed that the Regulation, and future amendments, should continue to govern the coordination of social security for UK and EU nationals who come within the scope of the Withdrawal Agreement under Article 50, i.e. citizens of either side who are lawfully resident in the other on the cut-off date. To that end, the provisions of the Regulation will be incorporated into the Agreement, should one be agreed.
15.33Social security coordination is part of a broader package of rights that both sides want to see “grandfathered” for affected citizens, including continued recognition of professional qualifications, a right to permanent residence and—potentially—continued freedom of movement for some UK nationals within the EU-27. Following the fifth round of Brexit negotiations in October, the UK and EU have agreed on most aspects of the Withdrawal Agreement relating to social security coordination. For example, citizens whose competent Member State under the Regulation is the UK, but who are already living in the EU-27 when the UK formally leaves, will retain their entitlement to healthcare reimbursement and the use of the European Health Insurance Card under Regulation 883/2004 for as long as they remain resident in the EU.
15.34Both sides have also agreed that “a mechanism should be established to decide jointly on the incorporation of future amendments” to the Basic and Implementing Regulation in the withdrawal agreement. The existing precedent for this is the EU-Switzerland agreement on social security coordination. Swiss nationals are entitled to the same rights as EU citizens when they move to an EU Member State, and vice versa if the latter move to Switzerland. It requires Switzerland to apply Regulation 883/2004 and the Implementing Regulation in full, with amendments and relevant subordinate EU legislation incorporated into the Agreement by mutual consent. Switzerland has so far agreed to incorporate all such amendments into its domestic law.
15.35On 17 October the Secretary of State for Exiting the EU updated the House with respect to citizens’ rights under the Withdrawal Agreement after the October round of negotiations. He reiterated that the EU and UK had reached agreement on the criteria for residence rights, the right to work and social security rights, although there were “still some issues outstanding for both sides”. He added that “in many … areas, it is a straightforward statement of fact that our proposals go further and provide more certainty than those of the Commission”.
15.36Although this is undoubtedly true, for example with respect to continued recognition of professional qualifications and onward free movement rights for UK citizens in the EU, we note that the Commission’s proposals offer more extensive rights by way of both the personal and material scope in other areas. For example, as regards social security and Regulation 883/2004, the UK wants to limit the ability of EU citizens to export benefits other than State Pensions to an EU-27 country after Brexit compared to the current legal situation, whereas the Commission does not. The latter’s proposals also offer more rights with respect to family reunion and the cut-off date to decide which EU and UK citizens are in scope of the agreement.
15.37In his letter of 13 March 2017 to our predecessors, the Minister of State for Employment confirms the Government is “planning for the possibility of no successor arrangement being in place at the point when the UK exits the EU”. However, he says it would be “inappropriate to comment further on this before negotiations begin”.
15.38A UK withdrawal from the EU without an agreement that covers social security coordination could have significant repercussions for UK nationals in the EU, especially where the UK remains the competent authority for the provision of social security. As our predecessors noted when they first considered the proposed amendments to Regulation 883/2004 earlier this year:
“An end to the current system of cross-border coordination might pose particularly acute problems for the approximately 190,000 UK pensioners resident elsewhere in the EU. As economically inactive mobile citizens, most of them rely on Regulation 883/2004 which requires the UK Government to provide them with the UK State Pension, and to reimburse their local healthcare systems for the cost of their medical care.
“If the provisions of that Regulation no longer apply and no replacement arrangement is agreed, the Government would not be obliged to reimburse those healthcare costs, nor to uprate pensions. In such a scenario, those affected would presumably have to purchase private health insurance in their EU country of residence, or—if they were unwilling or financially unable to do so—return to the UK.”
15.39In addition, UK citizens living in the EU who are affiliated to the social security system of their host country would also become “third country” nationals to whom the Regulation does not apply unless they move lawfully between EU-27 countries after Brexit. This could affect their entitlement to a range of social security rights including, for example, exporting child benefit to a child living in the UK. Naturally, it would be within the gift of national Governments to unilaterally guarantee those rights for citizens who would, had a Withdrawal Agreement been reached, have been within its scope. This would, however, still cause a potential legal vacuum in March 2019 and likely lead to disparities in the rights of UK nationals living in different EU countries.
15.40The Government has not published a comprehensive impact assessment of the effect a “no deal” withdrawal may have on UK (and EU) nationals. Given that the Article 50 negotiations have now been underway for nearly five months, and in view of the further comments by various Ministers that contingency planning for a “no deal” Brexit is taking place across Government, we have again asked the Minister for further information on the social security chapter of the Withdrawal Agreement, and to describe what these contingency plans look like with respect to the eventuality that no successor arrangement on social security coordination is in place by March 2019 (see paragraph 0.13 above).
15.41In addition to the direct link between the provisions of Regulation 883/2004 and the status of those UK nationals already resident in the EU (and vice versa) come Brexit Day, the Regulation may also be relevant for any future negotiations on a new framework for coordination of social security for nationals of the UK and EU who move between the two after Brexit.
15.42In the absence of a dedicated agreement on this topic, EU nationals who move to the UK after Brexit would be subject to whatever legislative restrains are put on the access of non-UK nationals to our benefit system. Similarly, UK nationals who relocate to the EU after Brexit would be subject to whatever national restrictions the Member State in question has in place for non-EU nationals (although they could benefit from the extension of Regulation 883/2004 to third country nationals if they subsequently move to another EU country).
15.43There is no reference in the Government’s position paper on citizens’ rights with respect to its objectives for a new UK-EU framework to govern relations in the field of social security following Brexit for citizens not within the scope of the Withdrawal Agreement, or indeed whether it is seeking to establish such a framework at all. We have therefore asked the Minister to confirm whether, in addition to seeking “an ongoing arrangement akin to the EHIC scheme as part of negotiations on our future arrangements with the EU”, the Government will also seek to extend the regime created by Regulation 883/2004 more generally for UK and EU nationals who are outside the scope of the Withdrawal Agreement.
15.44We note in this respect that the existing precedent for such an arrangement with a country outside the Single Market, the EU-Switzerland agreement which we described above in paragraph 0.34, was concluded as part of a broader treaty which extended the EU’s principle of free movement of persons to the Swiss. It is unclear if the EU would agree to a social security agreement with the UK which in essence preserved the effects of Regulation 883/2004 between the two sides unless the UK also accepted the wider principle of free movement, the abolition of which is one of the Prime Minister’s “red lines” in the negotiations. We have asked the Minister to confirm the Government’s negotiating objectives for the post-Brexit economic relationship with the EU in this area.
15.45We look forward to the Minister’s response to the questions we have put to him in this Report, and will consider the proposal to amend Regulation 883/2004 in light of the information he provides.
130 , as implemented by .
131 Several exemptions to this principle exist, primarily for non-economically active people such as pensioners or the unemployed. See footnotes 16, 17 and 31 for more information.
132 For example, article 19 of the Basic Regulation is the basis for the European Health Insurance Card (EHIC) scheme, which entitles holders (when staying temporarily in another Member State than the one where they are insured) to emergency medical care on the same terms as residents of that Member State.
133 See Commission document (13 December 2016).
134 See our predecessors’ for more information.
135 submitted by the Department for Work and Pensions (4 January 2017).
136 See paragraphs 0.28 to 0.30 in “Background” below.
137 See Council document .
138 (Florence, 22 September 2017).
139 on the option of a “dynamic reference to the limitations to equal treatment in Directive 2004/38/EC and extend the limitations by analogy”, p. 117.
140 See paragraph 0.34 for more information on the EU-Switzerland agreement on social security coordination, which includes such a mechanism.
141 For example, article 19 of the Basic Regulation is the basis for the European Health Insurance Card (EHIC) scheme, which entitles holders (when staying temporarily in another Member State than the one where they are insured) to emergency medical care on the same terms as residents of that Member State.
142 See Commission document (13 December 2016).
143 See our predecessors’ for more information.
144 The”right of residence” test means that to qualify for certain benefits, an EU national must be actively looking for employment, or be able to financially support themselves and have comprehensive sickness insurance. 80% of non-economically active mobile EU citizens derive either residence rights or entitlements to social security through working family members with whom they reside. As such, they will continue to be entitled to equal treatment irrespective of the proposed changes to the Regulation.
145 The European Court of Justice in 2016 that the right to equal access to non-contributory benefits for mobile EU nationals can be made subject to “right of residence” test (see footnote 16). As a result, Member States can refuse to grant non-contributory cash benefits to mobile citizens who are economically inactive, and who do not have a legal right of residence under the Free Movement Directive (although which specific non-contributory benefits are caught by this exemption is still a matter of contention, see footnote 31).
146 Under the current coordination rules, the Member State whose national legislation on unemployment benefit is applicable is determined by the principle that the worker is affiliated to the social security system of the Member State of their last employment. The Commission’s proposal would change this so that the Member State of last employment would only become responsible for unemployment benefit after a worker has paid into its national insurance system for at least three months. Until then, the Member State where they were previously employed remains responsible.
147 The UK currently does not provide a benefit that would fall within this category. See Commission Staff Working Document , part 6 of 6, Annex XXV, p. 210.
148 submitted by the Department for Work and Pensions (4 January 2017).
149 The previous Committee noted that, in absence of an agreement with the EU on social security for UK citizens already resident in the EU before Brexit and vice versa, UK pensioners in the Spain, France and Ireland (of which there are an estimated 190,000) would face particular problems. They rely on Regulation 883/2004 to receive the uprated State Pension from the UK, and to have their local healthcare costs reimbursed by the Government. Without an agreement, they would face paying for private health insurance or returning to the UK.
150 Speech by Prime Minister Theresa May (Florence, 22 September 2017).
151 European Council, ““ (29 April 2017).
152 from Damian Hinds to Sir William Cash (13 March 2017).
154 from Damian Hinds to Lord Boswell (7 August 2017).
155 from Damian Hinds to Lord Boswell (7 August 2017).
156 from Damian Hinds to the Chair of the European Scrutiny Committee (10 October 2017).
157 See for the text of the partial general approach.
158 , judgment delivered on 14 June 2016.
159 As by the Maltese Presidency in June 2017, “One of the most contentious issues on which delegations could not reach agreement concerned the codification of the case C-308/14—Commission vs. UK. In particular, the discussions concerned whether this case applies to all non-contributory social security benefits, or whether it should apply restrictively to family benefits, such as the benefits at issue in that case”.
160 HM Government and the European Commission, ““ (28 September 2017).
161 However, significant divergences remain with respect to other aspects of the “citizens’ rights” chapter of the Brexit negotiations (in particular family reunification rights for EU nationals in the UK).
162 This principally affects pensioners, as they do not become affiliated with the social security system of the EU country where they live unless they were employed there before retiring.
163 In a issued after the August 2017 negotiating round, the UK stated that it “seeks a broad scope for EHIC based on the principle of an insured person under [Regulation 883/2004], without any need for a cross border situation on day of exit”, saying that it had “significant concerns about operability without this”. However, in the updated note issued in September, this point had disappeared. It is clear that negotiations on this issue have been deferred until the phase 2 negotiations on the future UK-EU relationship.
164 , p. 16.
165 The three EFTA-EEA states Norway, Iceland and Liechtenstein are required to implement the EU’s freedom of movement acquis, including Regulation 883/2004, as part of their membership of the Single Market.
166 See article 8 and Annex II of the EU-Switzerland Agreement on the free movement of persons.
167 HC Deb 17 October 2017, vol 629, col 731.
168 The EU wants to maintain the totality of the current export rules while the UK argues that such exports by individual citizens should only continue post-Brexit if they already took place on “Brexit day” (for example, an EU national in the UK could not export child benefit to their children in another Member State unless they already did so on the day the UK leaves the EU).
169 By virtue of , which extended the scope of Regulation 883/2004 to nationals of non-EU countries legally resident in the EU and in a cross-border situation. It applies to all Member States except the UK and Denmark.
170 See e.g. Bloomberg, ““ (3 October 2017) and BBC News, ““ (8 October 2017).
171 See the between the European Community and its Member States, of the one part, and the Swiss Confederation, of the other, on the free movement of persons (OJ L 114 30.4.2002, p. 6), as amended. Switzerland has never refused the incorporation of changes to the Basic or Implementing Regulation into the Agreement.
20 November 2017