UK Politics

De-bundling Free Movement: an acceptable solution for all sides?

BL61540The question of free movement was undoubtedly the central issue of the European Union referendum debate, and it will, surely, be the central question surrounding Britain’s future relationship with the EU. While Leave campaigners repeatedly assured us that access to the EU’s single market (presumably through the EEA) is quite possible without accepting free movement, the early rumblings from the EU institutions and Member States do not sound too promising.

There are, of course, numerous free movement rights within the EU: free movement of goods, of services, of capital, to name but a few. However, the contentious free movement is that of persons. However, the broad term “free movement of persons” is a relative neologism, bundling the long-standing right of free movement of workers with the more recent right granted to all citizens of the EU to move reside freely within the territory of the Union.

Contrary to the rhetoric that we have heard, it is in fact entirely possible to participate in some aspects of the single market without accepting the free movement of persons. This is the case, for example, in the Channel Islands, and the Isle of Man, which participate in the free movement of goods, but not people, services, or capital. However, while the idea of the “Channel Islands Model” sounds attractive to many, it is probably even less likely than Scotland doing a “reverse Greenland”. The Crown Dependencies are considered by Article 355 of the Treaty on the Functioning of the European Union (TFEU) as special cases, along with various other overseas territories and dependencies of the Member States. While they might demonstrate that it is at least possible to selectively participate in the internal market, they also demonstrate that you have to be a territory or dependency to do it – not a state.

The right of free movement for workers is intrinsically tied up with the internal market, being one of the “four freedoms” that has existed since the inception of the European Economic Community (EEC, or “the Common Market”).

Free movement of workers is provided for by what is now Article 45 TFEU. It provides that:

  1. Freedom of movement for workers shall be secured within the Union.
  2. Such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment.
  3. It shall entail the right, subject to limitations justified on grounds of public policy, public security or public health:
    • to accept offers of employment actually made;
    • to move freely within the territory of Member States for this purpose;
    • to stay in a Member State for the purpose of employment in accordance with the provisions governing the employment of nationals of that State laid down by law, regulation or administrative action;
    • to remain in the territory of a Member State after having been employed in that State, subject to conditions which shall be embodied in regulations to be drawn up by the Commission.

Paragraph 4 provides the sole exception, which applies to employment in the public service (though not, according to the ECJ, all employment in the public service, see Commission v. Belgium). The right was held to cover not only workers, but also those seeking work, by the ECJ in Antonissen, although in an inventive piece of jurisprudence the court held that the rights of jobseekers were subject to limitations.

The right of citizens to move and reside freely provided for by Article 21 TFEU is of more recent genesis. A product of the Treaty of Maastricht, free movement for citizens is a right that is applicable far more broadly than simply the economically active migrants to whom Article 45 TFEU applies. Article 21(1) TFEU provides that

Every citizen of the Union shall have the right to move and reside freely within the territory of the Member States, subject to the limitations and conditions laid down in the Treaties and by the measures adopted to give them effect.

It should be immediately apparent to even the casual reader that this right of free movement, though broader in scope, is much more circumspect than the free movement of workers.

The rights attaching to free movement of workers were expanded upon by Council Regulation (EEC) No 1612/68, and subsequently entangled with the rights of free movement of citizens by Directive 2004/38/EC.

The 1968 Regulation is comprehensive. Article 7 provides that

  1. A worker who is a national of a Member State, may not, in the territory of another Member State, be treated differently form national workers by reason of his nationality in respect of any conditions of employment and work, in particular as regards remuneration, dismissal, and should he become unemployed, reinstatement or re-employment.
  2. He shall enjoy the same social and tax advantages as national workers.

The Directive further provides for equal treatment with respect to trade union membership and housing. It also extends this treatment to spouses and dependents.

The 2004 Directive provides for far more limited rights for citizens than the 1968 Regulation. For example, Article 6 of the Directive provides that the right to move and reside in another Member State is only without restriction for the first three months. Thereafter, Article 7 provides that such migrants must

have sufficient resources for themselves and their family members not to become a burden on the social assistance system of the host Member State during their period of residence and have comprehensive sickness insurance cover in the host Member State.

However, despite the clear intention of the legislating institutions to severely curtail the burden that such migrants may place on the social assistance system of the host Member State, this has not stopped the ECJ from granting entitlements to non-economically active EU citizens which any plain-text reading of both the treaties and the Directive would surely proscribe. The only recent example of the ECJ declining to extend a state benefit payment to a non-economic migrant is the 2014 Dano decision.

Could it be, therefore, that de-bundling the free movement of workers from the free movement rights of Union citizens is the compromise that would be most acceptable to all parties? It certainly has a number of advantages.

First of all, it would allow the EU to maintain that it has preserved the free movement of workers that is so intrinsic to the internal market. Meanwhile, the UK could claim a victory in having ended the absolute right of union citizens to move and reside freely, restricting the right solely to economic migrants.

It might also be a politically acceptable compromise, as it wouldn’t involve reviewing any of the treaty provisions regarding the internal market. Rather, it would merely involve reviewing the 2007 Decision of the EEA Joint Committee to adopt the 2004 Directive in full. No treaty change means there is no need for ratification, which would keep the debate surrounding it largely out of the domestic spheres of other EU Member States.

What this amounts to in reality is largely symbolic. As the definition of “workers” includes jobseekers, those looking for work will still be able to travel to and reside freely in the UK, at least until the UK Government can demonstrate that their job search is hopeless. In reality, the majority of non-economic migrants are retirees, and there are a far greater number of British pensioners in Europe than there are European pensioners in the UK. It may well be that when the Tory-voting Daily Mail readers of the Costa Del Sol discover that, in fact, they’re the only migrants who are about to be kicked-out of anywhere, our new government decides that the full free movement of persons principle is a price worth paying for market access after all.

They Took Our Jobs! The free market bias of the European Court of Justice and the dismemberment of workers’ rights

giphy“We have surrendered our sovereignty to the European Court of Justice” is the one of the most common arguments in favour of leaving the European Union of the Tory right. This, I have argued before, is somewhat surprising given that the consequence of that loss of sovereignty is the removal of Member States’ liberty to depart from a free-market, pro-private enterprise, capitalist ideology. The cardinal offender, in the minds of Jacob Rees-Mogg, et al. is the European Court of Justice (ECJ), with their fondness for distasteful European ideas such as rights, etc. It is true that the ECJ is imbued with a broad power to bind the courts of the Member States, and that that power might not be so objectionable if it were exercised in a manner that is ideologically neutral. However, while it is certainly the case that the ECJ is not ideologically neutral, what the Rees-Moggs and the Borises of this world seem to ignore is that the ideology the Court has consistently chosen to impose is the pro-enterprise ideology that Rees-Mogg and Boris so favour.

Article 3 of the Treaty on European Union (TEU) provides that one of the aims of the EU is to pursue a “highly competitive social market economy”. The ideological ambiguity in this objective is no accident – the consensus in favour of European unity at the Communities’ outset was so broad that the objective of unity was paramount to all other ideological concerns. As the ECJ is a fan of the purposive approach to legal interpretation, it therefore, inevitably, falls to the court to resolve the conflict between the “social” and “free market” objectives of the Union. It is clear from the decisions of the Court that the ECJ favours the free market over social objectives.

Though the Court’s ideological leanings have been evident since the days of Cassis de Dijon, in keeping with the other EU institutions, the ECJ became more overt in expressing its ideological preferences in the mid-1980s. In Zaera, the Court stated that the objective contained within Article 3 of “raising the standard of living” within the Union was not a directly effective right or an objective per se, but rather that it was an expected consequence of the operation of the single market. In other words, the only increases in living standards that the EU Treaties mandate are those that occur by accident through the operation of the market, and that any artificial attempts at raising living standards are (presumably) illegal where they interfere with the operation of the market. The decision to favour one objective of Article 3 while surgically neutering another is an ideological preference.

While we frequently hear claims from the left about how much the EU has done for workers’ rights (ignoring the fact that many of the rights that they provide already existed in the UK, and in the case of holidays the UK provides more the minimum mandated by the EU) there appears to be a collective ignorance amongst many on the left as to the ECJ’s total dismemberment of collective labour rights. Two seminal cases in the past decade exemplify this: International Transport Workers’ Federation and Finnish Seamen’s Union v Viking Line ABP (Viking) and Laval un Partneri Ltd v Svenska Byggnadsarbetareförbundet (Laval).

In Viking, Viking Line ABP operated a ship between Finland and the Estonia, and planned to change the registration of the ship from the former to the latter in order to avail of a lower minimum wage in for Estonian workers. The International Transport Workers’ Federation opposes all “reflagging” for convenience, and instructed all of its international partners not to deal with Viking. Viking sought an injunction in the High Court of England and Wales on the grounds that the industrial action infringed upon their right of freedom of establishment under Art. 56 TFEU.

Similarly, in Laval, the the Swedish government awarded a contract to build schools to a Latvian company, Laval, who posted workers from Latvia to work on sites alongside Swedish workers. The Swedish Building Workers’ Union demanded that Laval sign their collective labour agreement, which would provide Latvian workers with far better protection than they would have been entitled to under the Posted Workers’ Directive. Laval refused, and so the builders’ union, along with the electricians’ union, called a strike in order to picket Laval’s sites. Laval sought an injunction under Art.56 as the pickets prevented them from doing business in Sweden, thereby infringing upon their right of freedom of establishment. The Court held, inter alia, that the Posted Workers’ Directive only entitles workers to the rate of pay the higher of the rate of pay they receive in their home country or the minimum wage in the host country, irrespective of whether or not that wage is significantly lower than the wage received by domestic workers. In effect, you can undercut domestic workers by importing labour even when it’s prima facie discriminatory.

In both Viking and Laval the Court held that there exists in EU law a fundamental right to industrial action. Naturally in cases such as these, that right to industrial action comes into conflict with the employers’ right of freedom of establishment. Normally in cases such as this, where two rights are in conflict and the scales are evenly balanced, the Court will grant the Member State a wide margin of appreciation. Resolving the conflict between two rights is, ultimately, an ideological, and therefore, a political task, and not a role that a court such as the ECJ should be performing. This is the approach that the Court had previously taken in cases such as Schmidberger and Omega.

However, in Viking and Laval, the Court held that the right to industrial action is subject to the right of freedom of establishment, it must pursue a legitimate aim, and it must be proportionate. In other words, you’re allowed to strike provided it’s not too inconvenient for your employer! And there I thought the whole point of a strike was for it to be inconvenient.

These are just some examples of the court’s preference for corporations over workers. There exist plenty of other examples of the Court’s ideological preferences in the field of labour law (such as Rüffert), as well as scores of examples where State Aid, Public Procurement, and Competition law are concerned, which I intend to write about in a subsequent blog. What’s clear from all of this, however, is that if anyone should be enraged by the European Court of Justice, it’s not the Jacob Rees-Moggs of this world, it’s the left.

On offshore trusts: the key question David Cameron has to answer

94364275_davidcameron-news-large_trans++eo_i_u9APj8RuoebjoAHt0k9u7HhRJvuo-ZLenGRumAWhere trusts are concerned, there are three different roles:

  • A settlor (or trustor, more commonly in Scotland), who places the assets into trust in the first place.
  • A trustee, who strictly speaking owns the assets, but not for his or her own beneficial interest. The assets held in trust do not form part of the trustee’s personal assets.
  • A beneficiary, who will ultimately receive the income and/or capital from the trust.

Sometimes, one person can hold more than one role. For example, it might well be that the settlor is also the beneficiary of the trust – but he or she wants to be removed from the day-to-day management of the assets. Similarly, a settlor might also be the trustee, with the intention of protecting certain assets that he or she intends upon passing to their children when they reach a certain age. While in certain trusts, the beneficiaries have a direct proprietary interest in the trust (i.e. a legal entitlement to receive trust income or capital), other trusts are discretionary in nature – whereby the trustees can decide who they make payments to, when they are made, and how much. As there are no fixed beneficiaries of a discretionary trust, no one can be said to be a beneficiary of such a trust until they have actually received a benefit. Nonetheless, most such trusts are set up with a specific understanding that the trustees will make such payments to certain specified persons, notwithstanding their discretion. You literally trust the trustees to act in accordance with your wishes. Such trusts are particularly convenient when you want to conceal the real beneficial owner of assets.

The most common use of trusts, therefore, is for Inheritance Tax purposes. For example, payments into discretionary trusts can create significant tax advantages, as Inheritance Tax is payable at the point at which the money is transferred into the trust (as opposed to when you die) at half the usual rate. A nil-rate band discretionary trust is a common feature in every middle class will (they still have some advantages even following the introduction of the transferrable nil-rate band).

It is particularly common for Members of Parliament to set up trusts for innocuous purposes too. For example, someone who owns a business who is elected to Parliament might well want to return to that business when they cease to be an MP, in which case the wise thing to do is to place their ownership of that business into a trust in order to avoid creating a conflict of interest.

However, offshore trusts are an altogether different animal, with secrecy and tax avoidance at the core of their purpose. For example, trusts pay income tax just like everyone else. So if your plan is to place investments into a trust, and then re-invest the income from those investments so that the value of the trust grows further, the amount that you can re-invest will be curtailed by the fact that every year income tax will be payable on that income before it can be re-invested.

If, however, your trustees are located outside of the United Kingdom, but say, in a tax haven, then that recurring income tax is no longer an issue. The capital held in the trust can grow and grow, free from the encumbrances of recurring taxation. Tax is only payable in the UK on a remittance basis – that is to say when a UK-resident beneficiary receives a payment out of a trust he or she must declare that payment as part of their tax return. The beauty part is that this only happens once, rather than annually, and payments can be deferred until necessary or convenient.

This is why the explanations given by David Cameron in response to questions about their own interests in offshore trusts have been far from comprehensive.

Yesterday, David Cameron said

“I have no shares, no offshore trusts, no offshore funds, nothing like that. And, so that, I think, is a very clear description.”

Except that it’s not a very clear description at all. What did Dave mean by that? Does he mean that he has never set up a trust? That he’s not a trustee? That he’s not a beneficiary of any trust? This not-very-clear answer prompted Downing Street to issue another statement, denying that the PM or his family “benefit from any offshore funds”, with the seemingly deliberate present-tense of that denial raising more questions than it answered. The subsequent denial is more unequivocal, declaring that there are “no offshore funds/trusts which the prime minister, Mrs Cameron or their children will benefit from in future.”

From this, therefore, it is clear that the Prime Minister does not benefit from any offshore trusts, nor does he have any beneficial interest in any offshore trusts from which he can call in future. But what about one of those discretionary trusts, mentioned above? While it’s entirely possible to say quite unequivocally that you will not benefit from interest-in-possession trusts, it is impossible to say with any certainty that any of us will never be the beneficiaries of an existing discretionary trust in the future. The nature of such trusts is that they are discretionary, and a trust in which someone has no direct beneficial interest might, nevertheless, some time down the line, exercise their discretion and start making payments to you.

This is where the Prime Minister’s explanation is still inadequate. While the Telegraph has posed three questions that the PM still needs to answer, the key question is this: did Ian Cameron set up any discretionary trusts? If he has, then the persons to whom that trust has made payments in the past will be the best indicator of the sorts of persons to whom such a trust will make payments in the future.

I feel slightly sorry for David Cameron – he has clearly hasn’t done anything wrong. His father was a shrewd high-financier, who will doubtless have gone to considerable lengths to ensure his family was provided for. How was he to know that Baby David would grow-up to be Prime Minister? If Ian Cameron did set up an offshore discretionary trust with his children as intended beneficiaries then Dave can hardly be blamed for that. What the public is, rightly, concerned about, however, is the perception that the government’s inaction on tackling this sort of avoidance might, perhaps subconsciously, be due to a feint expectation by the Prime Minister and the Chancellor that they too might, sometime down the line, be the beneficiaries of such trusts. This is why nothing short of full disclosure will settle the issue, and the sooner that happens the less painful it will be for everyone.