And then what?

Photographer: JUSTIN TALLIS/AFP/Getty Images

Reform the EU? Changing the U.K. Matters More

Marc Champion writes editorials on international affairs. He was previously Istanbul bureau chief for the Wall Street Journal. He was also an editor at the Financial Times, the editor-in-chief of the Moscow Times and a correspondent for the Independent in Washington, the Balkans and Moscow. He is based in London.
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Last week Britain's David Cameron made a rare visit -- for a Western leader -- to Hungary's pariah-like Prime Minister Viktor Orban. Cameron can't be picky: He needs all the friends he can get to secure agreement for the "fundamental" change to the EU he has promised Britons so they can vote to stay in the bloc in a referendum.

QuickTake Britain and the EU

Reaching a deal next month as planned now appears to hinge on Cameron's demand for a four-year delay before new EU arrivals can claim welfare benefits in the U.K.  He has already conceded that he'll have to compromise: Outright discrimination against EU citizens won't be accepted by Poland, or even Hungary -- no matter how cloyingly helpful Orban sought to appear on Friday. So Cameron will have to reform Britain at the same time he reforms the EU. That's an idea worth exploring more.

There are many reasons why host nations are disturbed by immigration and, in the U.K., one of these is a sense of unfairness. It seems unfair that foreigners should be able to come to the U.K. to claim benefits without having paid tax there first; unfair that low-skilled British workers should face competition from illegal immigrants willing to work under the table; unfair that schools and hospitals should suddenly be overwhelmed, extending waiting times and class sizes for locals.

I'm with the FT's Martin Wolf in thinking that the whole renegotiation is a charade. But why not use it as an occasion to fix some of these very real U.K. problems, which aren't even just about intra-EU migration?

The way Britain's welfare system is structured is indeed uniquely accommodating for immigrants. It is the only nation in the western EU (to which 98 percent of intra-EU migrants go) that doesn't require people to pay into social security insurance funds, or simply work, for a given period of time before they can claim unemployment and associated housing benefits. It hands out child benefit in cash. It offers tax credits to top up the incomes of low-paid workers. And none of this is conditioned on prior work.

The net result is that Britain's working poor receive a top up of 82 percent of their earned income from the government, one of the highest levels in the EU. That makes Britain one of the best places in the bloc to be poor and working.

Reportedly, a compromise is being discussed in the EU under which everyone in the U.K. would have to be resident four years as an adult to receive benefits. The 18- to 22-year-old Briton who loses out from the change would be compensated in a way that doesn't break EU law (a typical EU fudge). Why not? Cameron has been talking since 2012 about removing the right to unemployment and housing benefits from 16- to 24-year-olds, so youngsters don't start out their careers on welfare, but have to "earn or learn."

Indeed, why not go further and create a partially insurance-based system a little more like those on the continent, so that taxpayers feel a greater connection between what they put in and their own potential good? That might also help with labor mobility, making people more willing to risk change. The U.K. shouldn't lose the positive aspects of its welfare system -- its focus on the poor and incentivizing work -- but there's room for change.

Similarly, in 2006, former Prime Minister Tony Blair's government introduced an identity card to U.K. residents for the first time, arguing that this would -- among other things -- make it possible for the government to more effectively inspect employers to ensure they aren't using illegal immigrants at exploitative rates of pay.

One of the first things Cameron did on coming to power was to abolish the ID cards, which conservatives in particular resented as a breach of privacy. Never mind the contradiction of that opposition from a nation that accepts being the most watched (on CCTV security cameras) in the democratic world; they won't be revived by Cameron.

He could, however, reintroduce an ID card for non-EU passport holders, which employers must have on record, ready for inspection, for those they hire. Properly used, that could give an important sense that control and fairness are being introduced to the system.

One could say the same of housing, schools and hospitals. Much resentment of immigrants comes from the perception that they are squeezing locals out of scarce housing and school places, and extending waiting times for medical treatment. Some proposals have been made to boost central funding for local authorities that receive most immigrants. The root of these problems, however, goes way beyond the impact of immigration, says Charlie Cadywould of the Demos think tank. He spent the last six months researching why local communities are so resistant to the new housing construction the country so obviously needs:

I found that this idea that it was outsiders who would be getting the new homes was very powerful. That "we" suffer the costs and inconvenience of new construction, and "they" benefit. What's interesting is that people didn't often speak in terms of immigrants, but outsiders -- including from the other side of a big town.

The solution to these problems clearly can't be found just by reforming the EU. Fixing them requires finally doing what's needed to unblock the U.K.'s planning system and devolve control over schools and hospitals so that local authorities with better knowledge of population growth patterns can plan for expansion -- something at which the present centrally-directed system fails abysmally.

The reason these things aren't happening, or at best slowly and partially, is that they are difficult. And even if achieved, they wouldn't provide the political frisson of forcing the EU to mend its ways, which is what Cameron wants to help him win the referendum to keep Britain in Europe. Indeed, the irony of changing the U.K. for its own benefit is that some measures would make it look more like its continental EU neighbors.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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