From the TUC

Are in-work benefits in the UK a magnet for EU migrants?

09 Dec 2014, by Guest in Society & Welfare

Should the UK be aiming to restrict access to benefits for citizens of other EU countries who are working here? The Prime Minister made this objective the centrepiece of his recent speech on migration:

‘Someone coming to the UK from elsewhere in the EU, who is employed on the minimum wage and who has two children back in their home country, will receive around £700 per month in benefits in the UK. This is more than twice what they would receive in Germany. And three times more than in France…..This has got to change. So I will insist that in the future those who want to claim tax credits and child benefit must live here and contribute to our country for a minimum of four years’

The other main parties also favour restricting access to tax credits and other benefits for working EU migrants. But the claim that the benefits system creates financial incentives to move to the UK rather than to France or Germany is open to question, because in-work benefits in the UK do not bring incomes up to higher levels than in those countries. Note that the issue is not whether migrants from poorer EU countries have a financial incentive to move to the UK. Wages and living standards are higher here after all, as they are in other wealthy European countries. Nor is it whether restricting tax credits would reduce the incentive for some migrants to move to (or to stay in) the UK – it would, especially for those with children. The issue, particularly when it comes to seeking the support of other European governments for proposed changes, is whether in-work benefits make the UK more attractive than other wealthy European countries. If that isn’t the case, restricting these benefits would look like a form of economic protectionism.1

In a forthcoming Touchstone pamphlet, we look at incomes, taxes and benefits for out of work and working families across 14 wealthy European and English-speaking nations. We can draw on some of this work here to look at how the incomes of people reliant on low wages compare among the UK’s geographical neighbours.

A general point emerging from this work and which is relevant in this context is that the UK is one of a number of English-speaking welfare states which provide extensive cash benefits for lower income working families with children.2 The net value of this support (for couple families with two children reliant on one minimum wage, as in the Prime Minister’s example) is similar in these countries, representing between 60% and 77% of the wage and between 36% and 45% of net income after taxes and benefits. The UK is not exceptional in the amount of cash support it provides in comparison with most other English-speaking nations: but it is different to most continental welfare states. Only two of the continental social security systems3 provide a comparable level of cash benefit support.

Cash benefits for working families are thus more of a feature of English-speaking than continental social security systems, and it is not surprising that if the value of these benefits is taken out of context the UK (and Ireland) can seem more attractive to migrants than France or Germany. However the economic incentive to move to the UK depends on the income people can expect to receive in work, not on one component of income such as tax credits. The UK minimum wage is lower than the French, Dutch, Belgian, Irish and- as of next year- German minimum wages. Do tax credits and housing benefit make up for the lower value of the UK minimum wage? We need to look at incomes in the round to get a sense of whether the UK’s benefits for working families really constitute a magnet for migrants.

It is never completely straightforward to compare incomes after taxes and benefits across nations due to variations in the way in which social protection is organised (for example, the balance between subsidised housing and cash housing allowances). Fair comparison requires assumptions to be made about hours worked, housing costs and the price base for comparisons. We have been lucky to be able to use detailed incomes data for 2012 provided by the Minimum Income Protection Indicators (MIPI) team at the University of Antwerp, for which we are very grateful (the MIPI team are needless to say not responsible for the use we have made of this data and may not share our conclusions). Some caveats are necessary. The results are inevitably very sensitive to housing costs assumptions, although the dataset allows these assumptions to be varied to some extent, and results may also be sensitive to the choice of exchange rate for cross-national comparisons.

Chart 1 shows minimum wage earnings, income after taxes and benefits and incomes after housing costs for the type of family referred to in the Prime Minister’s speech- a single earner couple with two children reliant on the minimum wage (where this existed in 2012: for Germany and Austria national experts estimated an equivalent wage floor for the MIPI dataset). Values are in private consumption purchasing power parities, expressed in sterling, thus reflecting relative purchasing power rather than currency market exchange rates.

Chart 1

Declan 1 v1
Sources: CSB-MIPI dataset, Version 2/2013; Van Mechelen at al. 2011; OECD private consumption purchasing power parities and author’s calculations.

The low value of the UK minimum wage compared to other European countries is clear, as is dramatic effect of taxes and benefits, bringing income in the UK up to rough parity with the Netherlands, which has a much higher minimum wage. The UK remains at the lower end of the scale after taxes and benefits, but the comparison is not entirely fair, because benefit levels in most countries partly reflect the assumed housing costs, and the housing cost assumption for the UK is on the low side. The green columns in the chart show incomes with housing costs subtracted: here, the UK is much more aligned with neighbouring countries.

The after housing costs figures provide the fairest picture of relative living standards. On this basis, and given the caveats about assumptions, a suitably cautious conclusion is that with the exception of super-rich Luxembourg, between-country differences in income after housing costs for a couple with two children reliant on one minimum wage are not large, and are very unlikely to be of a scale to significantly affect migration incentives.

We’ve looked at incomes for a couple with two children as this was the example cited by the Prime Minister: but what about single people without children, who are surely more likely to move in response to economic incentives? Chart 2 shows the same sequence of earnings, income after taxes/benefits and income after housing costs for singles.

Chart 2

Declan 2 v1
Sources: CSB-MIPI dataset, Version 2/2013; Van Mechelen at al. 2011; OECD private consumption purchasing power parities and author’s calculations.

After housing costs, the UK is clearly at the lower end of the distribution, despite a (modest) entitlement to Working Tax Credit. There is also (although this may not be obvious from the chart) more variation in income after housing costs for singles than for couples with children: for example, income in Germany is some 25% higher than in the UK, whereas for the couple family it was only 4% higher. This is at least indicative evidence that for singles the income incentive to migrate to the UK is weak compared to some neighbouring countries (incentives arising from availability of jobs are a different matter).

These results are based on scenarios where rents are set at 2/3 of the national median. We can also compare incomes after housing costs for singles and couples using a higher rent assumption.4 Again we find that incomes for couples are quite similar apart from Luxembourg, although the UK’s relative position improves. For single people incomes in the UK and Ireland are much lower than in the other countries.

Chart 3

Declan 3 v1
Sources: CSB-MIPI dataset, Version 2/2013; Van Mechelen at al. 2011; OECD private consumption purchasing power parities and author’s calculations.

As we have noted, this sort of comparison is not straightforward. Nonetheless this indicative evidence clearly shows the need to consider all sources of income before drawing conclusions about incentives to migrate to the UK compared to other wealthy nations. It suggests that while the UK provides more benefits for people in work if they have children, this does not mean low wage workers have higher incomes than in other wealthy EU countries: on the basis of these examples, if they have no children, their incomes are on the low side, while if they have children their incomes are around the rich nation average.

The implication is that because the minimum wage is lower, the UK needs to do more through the tax and benefit system to low waged incomes for families with children up to the average level of comparable wealthy European countries. Claims that benefits for working families tend to make the UK more attractive to migrants than other wealthy European countries thus deserve to be treated with scepticism.


  1. In his speech the Prime Minister conflated two distinct questions: (1) whether non-UK EU (in fact, EEA) citizens working in the UK should continue to be able to claim benefits for children living abroad, and (2) whether (or at what point) non-UK EU citizens should be able to claim benefits while working at all, wherever their children are based. The former concerns a maximum of 20,400 child benefit awards and 4,011 child tax credit awards for children resident outside the UK, not all of which will be to the full value of the UK benefit: the scale of the issue is quite out of proportion to the outrage expressed by politicians. The second question is of much greater importance: what is at stake is whether a significant section of the UK workforce should be treated differently by the tax and benefit system on the basis of nationality.
  2. The others are Ireland, the United States, Australia and Canada.
  3. Austria and Luxembourg
  4. The assumption is the median rent (mostly private sector). In the UK the assumption is the median social sector rent.


Natascha Van Mechelen, Sarah Marchal, Tim Goedemé, Ive Marx ‘The CSB-Minimum Income Protection Indicators dataset (CSB-MIPI)’ University of Antwerp, Herman Deleeck Centre for Social Policy, 2011