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UK no soft touch on benefits - PM

A new clampdown on benefits for European Union nationals will send a clear signal to would-be migrants that Britain is not a "soft touch", David Cameron has said.

Five weeks before Romanian and Bulgarian nationals get new rights to live and work in the UK on January 1, the Prime Minister set out radical plans to overhaul welfare rules, including stopping new arrivals from the EU receiving out-of-work benefits for their first three months in the country.

In an outspoken intervention, European employment commissioner Laszlo Andor labelled the move an "unfortunate over-reaction" and cautioned Mr Cameron not to interfere with rules underpinning the European single market.

And European Commission President Jose Manuel Barroso warned that free movement was a "fundamental" EU principle which "must be upheld".

Meanwhile, Labour accused the PM of "panicking" in the face of a looming Tory backbench rebellion. Some 45 Conservative MPs have signed up to a Commons motion calling for controls on Romanian and Bulgarian access to the UK to be extended until the end of 2018.

The Prime Minister phoned Mr Barroso on Tuesday to explain his plans before unveiling them in an article in the Financial Times.

After a three-month period without welfare, EU nationals will only be able to claim out-of-work benefits for a maximum of six months unless they can prove they have a genuine prospect of employment, Mr Cameron said.

New migrants will not be able to claim housing benefit immediately

Those found begging or sleeping rough could be deported and barred from re-entry for 12 months unless they can show they have a proper reason to be in the UK, such as a job.

Elsewhere, firms that pay less than the minimum wage will face fines of up to £20,000 in a bid to prevent undercutting of British workers.

Mr Cameron's official spokesman said the six-month limit on benefits and tougher residency tests for welfare claimants will be in place by the start of 2014.

But other measures will take longer as they require secondary legislation or new regulations, while tougher fines for breaching minimum wage laws will need primary legislation in Parliament.

In a round of television interviews, Mr Cameron said: "Clearly, you want to send a message to people thinking of coming to the UK (because) we might somehow be a soft touch in terms of benefits, in terms of housing benefit or unemployment benefit. I want to send a very clear signal that that is not the case."

He declined to put a figure on the amount of money that might be saved or the number of migrants who might be deterred by the new measures.

Mr Cameron said Labour's failure to keep tougher limits on countries such as Poland in 2004 was a "monumental mistake", and he "shared concerns" about what would happen after January 1.

He also demanded wider EU reforms for the future, suggesting labour movement from new member states could be limited until they hit a certain level of GDP per head.

"We need to face the fact that free movement has become a trigger for vast population movements caused by huge disparities in income," said the Prime Minister.

"It is time for a new settlement which recognises that free movement is a central principle of the EU, but it cannot be a completely unqualified one."

Downing Street said the PM was confident that the moves did not contravene European law, pointing to similar measures already adopted by Germany and the Netherlands.

Speaking to reporters in Brussels, Mr Barroso said: "I had the occasion to underline to Prime Minister Cameron that free movement is a fundamental treaty principle that must be upheld.

"There is clear evidence of its economic benefits. But we are also aware of the challenges that this can also bring, particularly for local communities and services, and EU rules already include measures to prevent abuse."

Mr Andor, a Hungarian economist, warned that efforts to "dismantle" some of the rules of the single market could be the start of a "slippery slope".

"This is an unfortunate over-reaction," he said. "The British public has not been given all the truth and the full truth about this subject. So we would need a more accurate presentation of the reality, not under pressure, not under such hysteria which sometimes happens in the UK.

"The unilateral action, unilateral rhetoric... is not really helpful because it risks presenting the UK as the kind of nasty country in the European Union."

Deputy Prime Minister Nick Clegg said the Liberal Democrats were fully signed up to what he described as " sensible and reasonable reforms to ensure that the right to work does not automatically mean the right to claim".

But UK Independence Party leader Nigel Farage said the measures fall "way short" of what the British public want.

"Our borders will remain open. Migrants will still be entitled to out-of-work benefits after just three months. It isn't nearly good enough," he said.

And shadow home secretary Yvette Cooper said the Prime Minister was "playing catch-up".

"Why has it taken him eight months to copy Labour's proposal to make the Habitual Residence Test stronger and clearer?" she asked.

"After Labour proposed this change in March, the Government said it was all fine and nothing needed to change. Yet now, rather than following a coherent plan, they are flailing around."

Labour said the timing of the announcement made clear it was a panic response to pressure from Ukip and the Tory right-wing.

"It looks as though David Cameron would have been facing a Christmas nightmare of a very large Tory rebellion over immigration so - in the same way he acted in a panicked way over payday lenders - he has acted in a panicked way over immigration," said a senior Labour source.

Mr Cameron is expected to discuss his proposals with European counterparts on the fringes of the EU Eastern Partnership Summit in Lithuania tomorrow.

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