Iain Duncan Smith's £2bn benefit tourism estimate cut by 92%

Iain Duncan Smith has vowed to fight the European Commission proposals

The likely cost to UK taxpayers of allowing more foreigners to claim benefits is 92% lower than previously claimed, Iain Duncan Smith has said.

The work and pensions secretary is fighting EU moves to change Britain's habitual residence test which limits benefit claims by new arrivals.

He said last year the EU proposal could cost the UK more than £2bn a year.

He has now revised that to £155m, a figure he still describes as "enormous".

At the moment, citizens of European Economic Area (EEA) countries who want to claim unemployment benefit have to pass an habitual residence test, proving they intend to settle in the UK or have a legal "right to reside" in the country.

Migrants without a job who are not a dependents of a worker or self-employed person, or are judged to be a "burden on public funds", currently fail the "right to reside" test.

But the European Commission believes this discriminates against citizens of other EU countries and has threatened legal action if it is not removed.

'Best estimate'

In an article last September for the Daily Telegraph, Mr Duncan Smith said the European Commission proposals "could mean the British taxpayer paying out over £2bn extra a year in benefits to people who have no connection to our country and who have never paid in a penny in tax".

But in a Commons debate on Monday he revised that figure, telling MPs: "I want to put it on the record that the costs of the proposal could be enormous.

"If we did not have the British residency test, it is estimated that right now the cost would be something in the order of £155m, although that could change."

Officials said the £2bn figure was the "best estimate at the time based on a possible scenario of the number of EEA nationals who might be able to claim benefits if the 'right to reside' element of the habitual residence test was removed".

"Those figures were the best that could be produced from the limited amount of information which was available at the time," added a Department for Work and Pensions spokesman.

'Vital'

Over the past year officials have been able to "use more detailed information to produce a much more accurate figure of the possible impact of removing the habitual residence test," he said.

The more detailed analysis, using data from the Labour Force Survey, eliminates households who have already qualified for benefits and so would not be affected by removing the "right to reside" test.

Mr Duncan Smith has repeatedly vowed to fight the European Commission proposal, telling MPs on Monday a "large number of other member states also have real concern" about it.

"The European Commission wants to end the habitual residence test and as a result I believe we would have to pay benefits to EU migrants as and when they arrive, rather than proving that they've been here and working and have a residency," said Mr Duncan Smith.

"I believe that this is fundamentally wrong and the government does too.

"The habitual residence test is vital to protect our benefits system, stopping such tourism. I also don't believe the EU has any particular rights in this area and we are working with other countries who feel much the same."

He said the UK was working with 17 member states "including Germany, Netherlands, Sweden, Denmark and Finland" on a set of "agreed principles which we will present to the EU, which I hope will end this nonsense".