24 June 2016

The consequences of Brexit for the social security?

It has eventually happened. The United Kingdom will leave the European Union. The wish to take back control and the migration flows seem to have been important items in the debate. The question arises whether the migration flows can actually be stopped, but that is beside the point. It looked briefly as though the British people would vote for “stay”, but a majority of the voters of the referendum that was held in the United Kingdom wants to leave the European Union. The Scots, however, want to stay. What does this mean for the interrelationship within the United Kingdom and will Scotland become a new member of the European Union? In addition, fears are currently being expressed that more EU Member States will follow. It is still in the lap of the gods how things will develop. At this stage, it is too early to oversee the consequences of the Brexit. The same applies to the social security. Below, you can find some thoughts on possible consequences for the social security, only a small part of the agreement is shown below.

Irrespective of the outcome, it was already certain in advance that the referendum would have consequences. After long negotiations, on 19th February 2016, an agreement[2] was reached to prevent the United Kingdom from exiting. This agreement stated a number of measures that would be taken if the United Kingdom would stay in the European Union. With respect to the social security, the agreement literally states the following: “Different levels of remuneration among the Member States make some offers of employment more attractive than others, with consequential movements that are a direct result of the freedom of the market. However, the social security systems of the Member States, which Union law coordinates but does not harmonise, are diversely structured and this may in itself attract workers to certain Member States. It is legitimate to take this situation into account and to provide, both at Union and at national level, and without creating unjustified direct or indirect discrimination, for measures limiting flows of workers of such a scale that they have negative effects both for the Member States of origin and for the Member States of destination.”

One of the proposed measures was the so-called “indexation” of child benefits. “Indexation”, put briefly, means that the child benefits exported to a Member State other than that where the worker resides will be indexed to the conditions of the Member State where the child resides. This means that the regulation on the coordination of social security systems, Regulation No 883/2004, would have to be amended. Pursuant to the mentioned agreement, as of 1st January 2020, all Member States can extend the indexation to existing benefits for children that already have been exported by the EU employees. The European Commission states that it does not have the intention to extend this indexation to other types of exportable benefits, such as pension. This promise will hopefully be kept and it is hoped that no doors will be opened for indexation of other benefits. According to the text of the agreement, the agreement would enter into force if the United Kingdom were to decide to stay in the European Union. The agreement seems to be no longer applicable, but does that also apply to the proposed measures? The agreement refers to “all Member States” and it has become clear that the European Union needs to work at keeping its Member States on board. Maybe the demand for indexation and the like will continue to exist.

Another point of the agreement I want to draw the attention to, is that in case the citizens of other EU Member States put such a high pressure on the social security system of a particular Member State, this Member State may take measures.[3] One of those measures implies that those foreign citizens only have a right to partial social benefits/welfare services during the first four years after those citizens have started working in the particular Member State. The measure may be applied for seven years and may not be extended. To this end, Regulation No 492/2011 would have to be adapted. The access to in-work benefits that are not based on premium or contribution payments is limited, where necessary, for the stated period. The limitation to benefits that are not based on premium or contribution payments seems a key issue.

The central question is whether it would be desirable to introduce the above mentioned measures in the light of the existing regulations. The free movement of workers and persons has been important and guiding in the constant stream of case law concerning the social security. The current Regulation No 883/2004 is based on one of the oldest regulations under European law, i.e. Regulation 3/58. The social security of the employees who work in the European Union was one of the first elements that had to be protected in the early “Europe”. The “lex loci laboris” principle is the starting point. Foreign employees who work in a particular Member State need to have the same rights and obligations as the employees who live and work in that Member State. The principle of equal treatment is set out in article 4 Regulation No 883/2004. Persons to whom this Regulation applies shall enjoy the same benefits and be subject to the same obligations under the legislation of any Member State as the nationals thereof. The lex loci laboris principle prevents social dumping; employees from so-called “cheap” Member States could be distortive of competition in the State of work. For their social charges are lower. Until now, also the export restrictions of social security benefits have been strictly interpreted.[4]

Pursuant to art. 11, Regulation No 883/2004 has an exclusive effect. This means that the legislation of only one Member State applies. The legislation of the other Member State will have to retreat. Often, the regulation is attributed a so-called strong effect, as complementary factor of this exclusive effect. This effect implies that if a legislation of a state is designated as applicable law, this law shall not discriminate between residency or nationality. Indeed, if this would be possible, then the exclusive effect would not bring any impact. The applicable legislation may, however, contain other conditions, for instance, a person needs to be subject to the legislation for at least a certain period of time. This provision is non-discriminatory because it applies to everyone, hence both to residents and non-residents of the Member State. This does not seem to be the case for the above mentioned measures. The question arises to what extent the door will be opened for other Member States to also impose restrictive demands if the conditions of the agreement would be met. What are the consequences of the Brexit with respect to the agreement? As noted previously, it is questionable whether the measures announced will still be introduced, also taking into account the anticipated demand of other EU Member States to hold a referendum. It remains to be seen to what extent the said measures eventually will be introduced.

  1. See also my blog ‘Brexit of exit gelijke behandeling?’ of 25 February 2016
  2. On the legal status of this agreement, I refer to the blog of A.W. Heringa, ‘De BRexit en het besluit/de besluiten van 19 februari 2016’ of 26 February 2016
  3. See for instance the article ‘Wat houdt de Britse EU-deal nu eigenlijk in?’, in De Morgen of 20 February 2016.
  4. See also point 17 and 37 in Regulation No. 883/2004.
By: Mr. dr. Marjon Weerepas