A sharp rise in the proportion of EU citizens not considered eligible for settled status has caused alarm among campaign groups as the rush to secure the right to stay in the country gathers pace ahead of a possible no-deal Brexit.

The settled status scheme has been running since March for EU nationals living in the UK to establish their permanent right to live in the UK. In his first House of Commons speech Boris Johnson emphasised that applicants could expect “absolute certainty for the right to live and remain” and said: “I repeat unequivocally our guarantee to the 3.2 million EU nationals now living and working among us.”

Q&A What does a no-deal or WTO-rules Brexit mean? Show Hide If the UK leaves the EU without a deal it would by default, become a “third country”, with no overarching post-Brexit plan in place and no transition period. The UK would no longer be paying into the EU budget, nor would it hand over the £39bn divorce payment. The UK would drop out of countless arrangements, pacts and treaties, covering everything from tariffs to the movement of people, foodstuffs, other goods and data, to numerous specific deals on things such as aviation, and policing and security. Without an overall withdrawal agreement each element would need to be agreed. In the immediate aftermath, without a deal the UK would trade with the EU on the default terms of the World Trade Organization (WTO), including tariffs on agricultural goods. The UK government has already indicated that it will set low or no tariffs on goods coming into the country. This would lower the price of imports – making it harder for British manufacturers to compete with foreign goods. If the UK sets the tariffs to zero on goods coming in from the EU, under WTO “most favoured nation” rules it must also offer the same zero tariffs to other countries.

WTO rules only cover goods – they do not apply to financial services, a significant part of the UK’s economy. Trading under WTO rules will also require border checks, which could cause delays at ports, and a severe challenge to the peace process in Ireland without alternative arrangements in place to avoid a hard border.

Some no-deal supporters have claimed that the UK can use article XXIV of the General Agreement on Tariffs and Trade (Gatt) to force the EU to accept a period of up to 10 years where there are no tariffs while a free trade agreement is negotiated. However, the UK cannot invoke article XXIV unilaterally – the EU would have to agree to it. In previous cases where the article has been used, the two sides had a deal in place, and it has never been used to replicate something of the scale and complexity of the EU and the UK’s trading relationship. The director general of the WTO, Roberto Azevêdo, has told Prospect magazine that “in simple factual terms in this scenario, you could expect to see the application of tariffs between the UK and EU where currently there are none”. Until some agreements are in place, a no-deal scenario will place extra overheads on UK businesses – eg the current government advice is that all drivers, including lorries and commercial vehicles, will require extra documentation to be able to drive in Europeif there is no deal. Those arguing for a “managed” no deal envisage that a range of smaller, sector-by-sector, bilateral agreements could be quickly put into place as mutual self-interest between the UK and EU to avoid introducing or to rapidly remove this kind of bureaucracy. Martin Belam

But since the scheme began the proportion of people being granted pre-settled status rather than settled status – and therefore finding themselves in a more precarious position, without the guaranteed permanent right to remain – has risen from 32% during the testing phase up to 34% in the month after the national launch in March, and to 42% in July.

The cause of the jump is unclear. Some applicants may have pressed the wrong button during the online application process, inadvertently accepting the less secure status. Campaigners have also questioned whether the system is designed to favour awarding pre-settled status in complex cases, so the Home Office can avoid having to refuse any applications during a politically sensitive period.

In the past week a number of long-term UK residents have gone public with their concerns that they have been wrongly given pre-settled status. Among them was the chef Richard Bertinet, who has lived in the UK since 1998 and said he felt “betrayed”. Meanwhile the pro-Brexit Conservative MEP Daniel Hannan warned that he was seeing EU nationals being denied settled status, despite years of residence in the UK, and called on the home secretary to address this “before we end up with another Windrush scandal”.

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The Home Office says it has not rejected anyone who has applied for the scheme, and to date has granted either settled status or pre-settled status to over a million applicants.

“This is semantics. Granting someone pre-settled status when they should have been given settled status should be seen as a refusal,” said Chris Desira, an immigration lawyer and expert on the EU settled status scheme. He said the Home Office was attempting to present the granting of pre-settled status as a success, but he warned that this was a less secure immigration status and urged those who felt they had been wrongly awarded this status to challenge the decision. “You should be worried,” he added. “Your leave in the UK is more precarious.”

Nicolas Hatton, co-founder of the EU citizens’ campaign group the3million, said he believed the Home Office was anxious to avoid media stories of EU citizens being declined status. “The Home Office is parking over a third of applicants in this temporary status, with no guarantee these people will be able to get settled status in the future. So it is a massive timebomb.”

All of the estimated 3.6 million EU citizens resident in the UK, except citizens of the Irish Republic, must apply for settled status so they can continue living in the country legally once free movement ends with Brexit. Anyone who can demonstrate they have been in the country for five years is eligible for settled status, which echoes the rights they have currently.

Anyone who has been in the country for a shorter time, or who has not proved definitively that they have been here for the full five years, will be granted pre-settled status, and will have to apply again for the permanent status once they have accrued five years of residence. In the meantime, they must maintain continuous residence, so will have less freedom to leave the country for extended periods, complicating life for people who need to work or study abroad.

Most of the 42% granted pre-settled status will have been correctly given that status because they have not yet been here long enough, but immigration experts are worried by stories of applicants being wrongly put into this category.

“We regularly see cases where an individual’s residence exceeds five years but, often for no clear reason, they are not granted settled status. This is a concern because pre-settled status provides less security for citizens’ rights than settled status,” said Tahmid Chowdhury of Here for Good, a charity set up to provide free immigration services to EU citizens in the UK. “It is clear that the government does not want to be seen rejecting EU settled status applications.”

Jill Rutter, director of strategy at immigration and integration thinktank British Future, said she was concerned by the rise in the number of people getting pre-settled status, and said the proportion was higher than she would have expected. Conversations with community groups supporting applicants indicated that they were seeing “people who expected to get settled status who were surprised when they got pre-settled status”, she said.

She warned that those granted pre-settled status would need to be reminded by a government information campaign to upgrade the status as soon as possible.

Home Office statistics do not show how many people who intended to apply for settled status were granted pre-settled status instead, but a spokesperson said staff working on the scheme were looking to grant the status people were eligible for and not refuse it.

“By the end of June not a single person had been refused the status for which they applied. Nobody has been granted pre-settled status without first being offered, and declining, the opportunity to submit evidence that they qualify for settled status. More than 1 million people have been granted status through the EU settlement scheme so far and two-thirds of those have been granted settled status, which is in line with our expectations,” the Home Office said in a statement.

People granted pre-settled status have the same rights to work, study, receive healthcare and benefits as those with settled status, the official said. However, in order to successfully upgrade the status they will have to remember to reapply by the deadline, ensure they don’t leave the UK for long stretches and not breach the criminality requirements.

Although people have at least until 31 December 2020 to apply, interest in applying surged after the home secretary, Priti Patel, said free movement would end on 31 October in the event of a no-deal Brexit, lawyers said. The online system experienced technical issues last week, with long delays. The Home Office said this was not connected to a rise in applications.

• This article was amended on 4 September 2019 to clarify that citizens of the Irish Republic do not need to apply for settled status as they are covered by separate, longstanding arrangements between Ireland and the UK, which were reaffirmed in May this year.