Documents considered by the Committee on 10 January 2018 Contents

7Coordination of social security systems

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Work and Pensions Committee

Document details

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

Legal base

Article 48 TFEU; QMV, ordinary legislative procedure

Department

Work and Pensions

Document Number

(38400), 15642/16 + ADDs 1–8, COM(16) 815

Summary and Committee’s conclusions

7.1As part of the free movement of people, the EU has created a system for the coordination of social security benefits for EU residents who move between different Member States.74

7.2In December 2016, the European Commission tabled a legislative proposal to bring the relevant legislation (primarily Regulation 883/2004 and its Implementing Regulation)75 in line with the case law of the European Court of Justice on access to benefits for unemployed EU citizens; to clarify the rules for determining which EU country is responsible for payment of benefits; and to amend the provisions of the Regulation on access to unemployment benefit, salary-related family benefits and long-term care benefits.

7.3The Committee has set out the details of this proposal in some detail in previous Reports in February and November 2017.76 We have retained it under scrutiny because of its political importance. Notably, the provisional Withdrawal Agreement on the UK’s EU exit foresees the continued application of social security rights derived from the Regulation (including the proposed amendments) for UK citizens already resident in the EU and vice versa on the date of the UK’s withdrawal from the EU.77 The aim is to ensure that social security entitlements that are available to those UK and EU nationals directly affected by Brexit will not disappear after Regulation 883/2004 ceases to apply to the UK.78

7.4The proposal to amend Regulation 883/2004 remains under consideration within the European Parliament and the Council, although the latter has established its negotiating position on most elements of the draft legislation through two separate partial general approaches (see paragraphs 7.20 to 7.26 below). The Government has been broadly supportive of the proposed amendments. Nevertheless, the Committee refused to grant a scrutiny waiver that would have allowed the Government to support a partial general approach at the EPSCO Council of 7 December 2017, as the information we had requested on the substance of the proposals had not yet been provided.

7.5In response, the Minister for Employment (Damian Hinds) abstained from voting at the Council meeting, and wrote to the Committee on 14 December with a comprehensive update on the status of the negotiations within the Council. He also explained that the Government had been supportive of both partial general approaches adopted by the Council so far (see “Background” below).79 However, the Minister felt unable to provide further information on the Government’s contingency planning if the agreement on grandfathering the social security rights of UK nationals already living in the EU is, for whatever reason, not ratified by March 2019.80

7.6Negotiations on the proposed amendments are set to continue in the first half of 2018, with the European Parliament’s Employment Committee expected to adopt its negotiating position in June. The incoming Bulgarian Presidency of the Council is hoping to reach a final Council general approach, on access to unemployment benefit, at the meeting of the EPSCO Council the same month. Trilogues would then take place in the second half of the year, with a view to adoption of the new Regulation by the end of 2018.

7.7The proposal to amend Regulation 883/2004 remains politically important, given the impact it could have on individual citizens’ lives, and its specific significance within the “citizens’ rights” chapter of the draft Withdrawal Agreement on the UK’s exit from the EU.

7.8We thank the Minister for his detailed letter of 14 December, which clarifies the substance and implications of the two partial general approaches adopted by the Council in October and December last year. These are, we are assured, in line with the Government’s own objectives for the revision of the Regulation. The Committee has taken note of the Bulgarian Presidency’s intent to finalise the Council’s position on the draft Regulation at the EPSCO Council in June 2018. We hope to receive information on the substance of any compromise legal text on unemployment benefits in good time before that meeting.

7.9With respect to the implications of Brexit for UK and EU nationals currently benefitting from Regulation 883/2004, the Committee welcomes the provisional agreement on citizens’ rights announced by the Government and the European Commission on 8 December. However, we are disappointed that the Government is still unable to provide any information on its contingency planning should the Withdrawal Agreement, and its Citizens’ Rights chapter, not be ratified for whatever reason.

7.10Failure to ‘grandfather’ existing EU social security rights, for those who have already exercised their freedom of movement before Brexit, would have serious consequences for many thousands of people. In the absence of a legally-binding Agreement, the rights UK nationals in the EU derive from Regulation 883/2004 to access, aggregate and export social security entitlements would disappear, and it is not clear whether there would be a unified EU-wide response to address the resulting legal uncertainty for UK nationals. Similarly, it is unclear how the UK Government could unilaterally prevent disruption in the lives of those affected, for example if healthcare providers in Spain and France no longer recognised S1 forms issued by the UK. We will continue to press the Government to provide more clarity about its contingency plans for such an eventuality.

7.11Looking further ahead, the Committee had also asked whether the Government would seek a new social security arrangement with the EU after Brexit, for citizens of both sides who want to move between the two after the UK’s withdrawal from the EU. The Minister was, again, unable to provide clarity on this point. However, if the Government agrees to the post-Brexit transitional arrangement proposed by the EU,81 Regulation 883/2004 (and freedom of movement more broadly) would apply to the UK until the end of 2020 in any event. That would provide further time for the details of any new EU-UK social security agreement to be negotiated.82 We will closely follow the negotiations on the transitional period and any subsequent UK-EU economic partnership, especially where these entail a continued obligation on the UK to apply EU law (including Regulation 883/2004).

7.12Given that the proposal remains under discussion, and in view of the uncertainties triggered by Brexit, we retain the proposal under scrutiny. We also draw these developments to the attention of the Work and Pensions Committee.

Full details of the documents

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), 15642/16 + ADDs 1–8, COM(16) 815.

Background

7.13Regulation 883/2004 determines which EU Member State is responsible for the calculation and payment of social security benefits for mobile EU citizens who move within the Union. Such citizens are, in principle, entitled to use the local benefits system on the same basis as nationals of their host Member State, including unemployment benefit, child benefit and state pensions, as well as having a right to access short- and long-term healthcare.

7.14In December 2016, the European Commission tabled a legislative proposal to bring Regulation 883/2004 in line with the case law of the European Court of Justice on access to benefits for unemployed EU citizens; clarify the rules for determining which EU country is responsible for payment of benefits; and to amend the provisions of the Regulation on access to unemployment benefit, salary-related family benefits and long-term care benefits. The Committee has set out the details of this proposal in some detail in previous Reports in February and November 2017.

7.15The amendments to the Regulation are unlikely to apply before the UK withdraws from the EU in March 2019. However, the Regulation, and this pending amendment, are nonetheless significant. The UK and EU have both agreed to maintain its provisions for EU nationals resident in the UK on “Brexit Day” and vice versa as part of any Withdrawal Agreement under Article 50 TEU. The two sides have also accepted the need for a mechanism to apply future changes to the Regulation, as agreed at EU-level, to citizens within the scope of the Withdrawal Agreement. In addition, the Government is now seeking an “implementation period” for the immediate post-Brexit period, during which it is likely that Regulation 883/2004 would continue to apply as it did while the UK remained a Member State.

7.16The Government has been broadly supportive of the proposed amendments. On 23 October 2017, EU Employment Ministers agreed a partial general approach on the elements of the Commission proposal relating to equal treatment and the determination of applicable national legislation. The Committee considered the Council’s position, and the Government’s override of scrutiny to support its adoption, at our meeting on 13 November. We retained the proposal under scrutiny and asked a number of detailed questions of the Minister of State for Employment (Damian Hinds) about the Government’s position, including in the Article 50 negotiations.83

7.17On 22 November, before we had received a reply to our previous Report, the Minister informed us that the Estonian Presidency was also seeking to secure a second partial general approach on long-term care benefits and family benefits at the EPSCO Council on 7 December.84 He noted that the Government was “prepared to accept the current text”, adding that the proposed coordination of long-term care benefits “should not have any financial impact for the UK”. As regards the inclusion of family benefits within the scope of the Regulation, the Minister confirmed that the UK “does not administer any benefits of this type”, and so there should “only be a limited financial impact”.

7.18To enable the Government to support this partial general approach, the Minister requested a scrutiny waiver in advance of the Council meeting. Given the importance of the dossier and the lack of information we had received from the Government at that point, the Committee did not grant the Minister a scrutiny waiver.85 The Council did adopt the partial general approach at its meeting on 7 December, with the UK abstaining as a consequence of the Committee’s decision.

The Minister’s letter of 14 December 2017

7.19The Minister wrote to the Committee on 14 December, with information on both partial general approaches (of 23 October and 7 December), and the Government’s position thereon.

The partial general approach of 23 October 2017: equal treatment

7.20On 23 October, the EPSCO Council adopted a partial general approach86 on the elements of the proposed Regulation relating to European Court of Justice case law on the “equal treatment” principle, which aligns the rights of EU citizens to access to social security with the rights of their host Member State’s native citizens. In 2016, the Court had ruled that the separate Free Movement Directive allows Member States to use a “right of residence” test87 to restrict access to certain non-contributory cash benefits claimed by economically inactive EU citizens resident in their territory under Regulation 883/2004.88

7.21The original Commission proposal would have amended Regulation 883/2004 to codify this case law, without specifying explicitly to which non-contributory benefits the “right of residence” test could be applied. 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 Court’s judgement), the partial general approach adopted by the Council would leave the relevant provisions of the Regulation unamended. The Government supported the Council’s position on these provisions, and voted in favour of the compromise text on 23 October.89

7.22In his letter of 14 December, the Minister provided further information on the implications of the Council’s approach. He explained that the proposed text would allow the UK to continue to rely on the Court of Justice’s judgement to apply the “right of residence” test before it grants a number of income-based benefits.90 The Minister confirmed that it is the Government’s view that the Court’s jurisprudence allow the residence test to be applied to “social benefits” more widely, although that interpretation is clearly not shared by all other Member States.91 Given that the Council’s position allows the Government to continue taking its current approach, the Minister had supported its adoption.

The partial general approach of 7 December 2017: long-term care benefits and family benefits

7.23On 7 December, the Council adopted a second partial general approach relating to the coordination of long-term care benefits and salary-related family benefits.92 The Government abstained despite supporting the compromise text, as the Committee had refused to grant a scrutiny waiver.

7.24In his letter of 14 December, the Minister confirms the UK does not provide any salary-related family benefits of the type now being brought within the scope of the Regulation. He explained, however, that the new legislation is expected to have a “limited” financial impact in the UK because it already pays a supplement to another Member State where that country is primarily responsible for the payment of a family benefit (Child Benefit and Child Tax Credits in the UK).93

7.25Under the amendment to Regulation 883/2004, the salary-related family benefit will no longer be taken into account when calculating the supplement the UK must pay to the other Member State as it is considered exclusive to the parent, and therefore only payable by the country where the parent is insured. Another Member State would therefore not have to contribute towards it. The Council’s partial general approach maintained this element of the Commission proposal, but also clarified that this new category of income-replacing benefits should also cover individual child-raising benefits allocated to a non-working parent raising a child (and hence being unable to take up work). The Minister explained:

“Whilst we expect the UK to continue paying a family benefit supplement to other Member States, this amount is likely to be smaller than it would have been had the categorisation not been clarified by Council’s decision at 7 December EPSCO.”

7.26With respect to the inclusion of a specific category of long-term care benefits in the Regulation, the Government’s position is that the coordination of such benefits “should not extend the scope of the Regulation beyond what has already been established by Court of Justice case law”. The Minister explained that the text presented to Ministers at the December EPSCO Council “preserves the status quo and is therefore acceptable to the Government”.

Further discussions within the Council: Unemployment benefits

7.27The Commission has also proposed revisions to the unemployment benefits chapter that would create new arrangements for the coordination of such benefits. At this stage, no substantive discussions have yet taken place on these provisions within the Council. However, the Government estimates “that the cost impact of the proposed changes will be small”.

The implications of Brexit for social security coordination

7.28Lastly, the Minister’s letter summarised the elements on social security of the provisional Withdrawal Agreement reached with the EU in December 2017.94 Under the Agreement, once ratified by both sides, the EU’s existing social security coordination rules will cover EU citizens who on the “specified date”95 are, or have been, subject to UK social security legislation and vice versa. The Agreement will also cover EU citizens residing in the UK and UK nationals residing in the EU on the specified date. The Minister explained:

“For those in scope, on a reciprocal basis the UK and the EU will continue to aggregate social security contributions made both before and after exit, meaning those who have paid into a system, and may pay in future, will have their contributions protected. The right to export benefits to both EU Member States and the UK will continue, as under the current EU rules, for those covered by the deal. Again, for those in scope, the Government will continue to pay an uprated UK State Pension to EU Member States and, in accordance with EU rules, provide associated healthcare cover in the EU, and vice versa.”

7.29As noted by the Committee in its Report of November 2017, the UK and EU have also agreed that a mechanism should be established to decide jointly on the incorporation of future amendments to Regulations 883/2004 and its Implementing Regulation (including the pending proposals which we have described in this Report) in the Withdrawal Agreement. The details of that mechanism are to be decided in the second phase of the negotiations, which are expected to start at the end of January 2018.

7.30The Minister also refers to the questions put to him by the Committee in respect of the possibility of a “no deal” Brexit, if the Withdrawal Agreement, for whatever reason, is not ratified. In such an eventuality, the system of social security coordination would abruptly cease to apply to EU citizens in the UK and vice versa. This would mean UK pensioners in the EU would overnight become ineligible for the system that enables their local healthcare costs to be paid by the NHS, and affect the ability of other UK nationals living in the EU to access, aggregate and export their current social security entitlements.96

7.31The Minister provided no substantive detail on the Government’s fall-back strategy for UK nationals living in the EU if the Withdrawal Agreement falls through. His letter refers briefly to the proposed post-Brexit transition period, which the Government and the European Commission are due to negotiate in the coming weeks. Although the Minister did not state so explicitly, this transitional arrangement, if one is agreed, is likely to keep the existing system created by Regulation 883/2004 in place for those who move between the UK and the EU for its duration. The provisions of the Withdrawal Agreement, as described above, would then only take effect after the transition ends (which, the Commission has argued, should be on 31 December 2020).

7.32With respect to any future coordination of social security rules for individuals not covered by the Withdrawal Agreement, the Minister stated only that this “will need to be discussed at a later stage of the negotiations with the European Union”. He did not reply directly to the Committee’s questions in this respect, namely whether the Government would seek a similar arrangement post-Brexit, and how that would be affected by its decision to end the free movement of people.97

Previous Committee Reports

Thirty-first Report HC 71–xxix (2016–17), chapter 8 (8 February 2017); First Report HC 301–i (2017–19), chapter 15 (13 November 2017); and Fourth Report HC 301–iv (2017–19), chapter 8 (6 December 2017).


74 For example, the Regulation is the legal basis for the system that allows many of the 190,000 British pensioners living in other EU countries to access healthcare locally on the same basis as citizens of that country, and to have the costs of their care reimbursed by the Government using a so-called S1 form issued by the UK. The effects of the Regulation have also been extended to the four EFTA countries (Iceland, Norway, Liechtenstein and Switzerland).

75 Regulation 987/2009.

76 See the Committee’s Reports of 8 February 2017 and 13 November 2017.

77 Joint Report by DExEU and the European Commission (8 December 2017).

78 In addition, the Government is now seeking an “implementation period” for the immediate post-Brexit period, during which it is likely that Regulation would continue to apply as it did while the UK remained a Member State (i.e. including to EU citizens who move to the UK after March 2019). The European Council’s guidelines for the transitional arrangement envisage that the entire EU acquis will continue to apply to the UK during this period, as if it were still a Member State. EU Member States are free to determine at national level how non-EU or EFTA nationals can access their social security systems.

79 Letter from Damian Hinds to Sir William Cash (14 December 2017).

80 When the Committee first asked for details of the relevant contingency plans in February 2017, the Minister replied that “it would not be appropriate to comment further on this before negotiations have begun”.

81 Guidelines for the transitional period adopted by the European Council on 15 December 2017.

82 As we have noted, the EU has only concluded such arrangements with the four EFTA countries which have accepted freedom of movement (although the Government could seek bilateral arrangements with specific EU countries instead).

84 Letter from Damian Hinds to Sir William Cash (22 November 2017).

86 The Council’s general approach is considered “partial” because it only established the Council’s position part of the proposal, and not—as is the usual practice—its entirety.

87 The “right of residence” test means that to qualify for certain benefits, an EU national must be actively looking for employment, 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 Court’s judgement.

88 See judgement in case C-308/14 Commission v United Kingdom. The details of this element of the proposal are set out in more detail in our Report of 13 November 2017.

89 Because of the delays in appointing members of the Committee following the 2017 general election, the Committee was unable to consider the proposal and the Minister’s request for a scrutiny waiver in advance of the October Council meeting.

90 Child Benefit, Child Tax Credit, income-based Jobseeker’s Allowance and income-based Employment Support Allowance.

91 As noted 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”.

92 This new category covers benefits “intended to replace income during child-raising periods”. The UK currently does not provide a benefit that would fall within this category. See Commission Staff Working Document SWD(2016) 460, part 6 of 6, Annex XXV, p. 210.

93 Where entitlement to family benefits arises simultaneously for the same member of the family in more than one EU country, the implementing rules for Regulation 883/2004 set out a series of priority rules which help to determine which country will be primarily responsible for the payment of family benefits (to avoid dual entitlements). Each country concerned is required to calculate the amount of family benefits due for the family, and the Member State that provides the highest amount of family benefits (country A) is required to pay in full. The other Member State (country B) then pay a supplement to that country A for a maximum of 50 per cent of that amount, or the maximum amount of family benefit that would have been provided by country B if it were responsible for paying.

94 Joint Report by DExEU and the European Commission (8 December 2017).

95 The EU’s position is that the “specified date” would be the end of any post-Brexit transitional period, not 29 March 2019.

96 The Committee has set out the implications of a “no deal” scenario in more detail in its Report of 13 November 2017, paras. 15.37 to 15.40.

97 Switzerland is the only non-EEA country to which the system created by Regulation 883/2004 applies under the terms of a bilateral EU-Switzerland Agreement. However, it is part of a wider Treaty which also extends free movement of people to that country, which the Government has explicitly ruled out. See paragraph 15.34 of our Report of 13 November 2017 for more information.




15 January 2018