German Chancellor Angela Merkel and her allies have devised a compromise agreement in Brussels

Migrant workers would be banned from getting in-work benefits if they fill low-paid jobs under a controversial plan designed to keep Britain in the EU.

Germany has offered David Cameron a deal that would see EU citizens who earn only the minimum wage denied state handouts.

But, to make the idea acceptable to Brussels, hundreds of thousands of low-paid British workers would also miss out on tax credits.

Insiders say the idea has been embraced by No 10 – which is desperate to declare that it has secured a ‘win’ on limiting migrant benefits.

But Eurosceptic sources say it entirely misses the point of the Prime Minister’s renegotiation with the EU.

One said: ‘We gave a promise to deal with immigration.

'This is about targeting the low paid. To present this as a victory would be simply wrong.

'It would make little or no difference to the number of migrants coming here while hitting those who have contributed in terms of taxes.

‘What sense does it make if somebody who has been here for a few years, paying into the system, has their benefit stopped because they don’t earn a lot, but if you turn up on a slightly higher salary, you can claim immediately.

‘It is a nonsense and it sends out entirely the wrong message.’

The proposal is Germany’s alternative to Mr Cameron’s demand for migrant workers to be banned from receiving in-work benefits for the first four years they are in the UK

The proposal is Germany’s alternative to Mr Cameron’s demand for migrant workers to be banned from receiving in-work benefits for the first four years they are in the UK.

The idea has been fiercely resisted by Eastern European countries in particular, which say it would amount to discrimination.

With Mr Cameron desperate to secure a referendum deal at the Brussels summit next month, German Chancellor Angela Merkel and her allies have now devised a compromise agreement.

This would see the term ‘worker’ being redefined. A person would only be classified as a worker – and therefore be eligible for handouts – once they earn a fixed sum of money.

The threshold has yet to be agreed but it would be above the current minimum wage, which is worth around £1,100 a month for somebody working full time.

The introduction of a new ‘living wage’ of £9 an hour by 2020 and changes in the personal tax allowance will sharply increase the basic pay of low-paid workers

German officials say the move would allow Mr Cameron to claim he is deterring low-paid workers from moving to Britain and having their income topped up by benefits.

But to be considered legal by the EU institutions, it would have to apply to all EU citizens equally – including British workers.

And the introduction of a new ‘living wage’ of £9 an hour by 2020 and changes in the personal tax allowance will sharply increase the basic pay of low-paid workers – making Britain even more attractive to migrant workers.

Single workers from the EU would see their weekly income surge by an average of 60 per cent, according to research by the Vote Leave campaign.

Is it really the best they can come up with?

Even if Mr Cameron is successful in stopping migrant workers on the minimum wage getting tax credits, weekly take-home pay would continue to be 156 per cent higher than in Poland and 353 per cent higher than in Bulgaria, it found.

Eurosceptics say that – given the huge row over George Osborne’s attempt to cut the tax credit bill last year – the idea would face ferocious opposition at Westminster.

One minister said: ‘This is desperate stuff. Is it really the best they can come up with?’

Yesterday, the European Commission’s chief negotiator on its Brexit taskforce warned Mr Cameron that he may get just a promise from leaders to change EU treaties in the future – rather than a binding agreement before the referendum.

Jonathan Faull appeared before MEPs in Brussels after refusing to be questioned before a House of Lords committee in public.