Britain and Europe are moving towards a breakthrough in David Cameron’s quest to deny EU citizens working in Britain tax credits and other benefits for up to four years.

As the prime minister prepares to meet the European commission president Jean-Claude Juncker on Friday, senior sources in Brussels suggested that both sides are nearing agreement on the issue that has for months been the central and most contentious sticking point in his campaign to rewrite the terms of Britain’s EU membership.

Talks are said to be at a sensitive stage but the sources confirmed that an agreement is in sight on a new arrangement that would allow the government to pull an “emergency brake” if and when migration flows into the UK from other EU countries were deemed to be putting excessive stress on social and welfare systems.

The new rules being negotiated would apply to all EU member states, not just Britain, and, crucially, authority over whether the brake could be used would lie with EU governments and not with the EU in Brussels.

The issue has for months been the central and most contentious sticking point in Cameron’s campaign to rewrite the terms of Britain’s EU membership.

Rather than suspending EU immigration into Britain, the proposed mechanism would permit host governments to freeze welfare payments for employed newcomers for up to four years. Senior EU sources said the timeframe was not yet settled.

The signs of a breakthrough came as the prime minister embarked on a crucial last phase of diplomacy with European leaders ahead of a Brussels summit on 18 February. At that summit a final deal may be reached that would put Cameron on track for Britain’s in/out referendum in late June.

David Cameron said he was pleased that his call for welfare curbs was being taken seriously in Brussels. Speaking during a visit to Aberdeen, he said: “I’m glad that others in Europe are now taking on board this issue and looking at strong alternatives to the proposal I put forward … It’s a complex negotiation, there’s a lot of work to be done not just on migration but on the other things I’ve spoken about.”

Cameron is to travel to Brussels on Friday for talks, arranged at short notice, with Juncker, causing him to cancel scheduled meetings with the prime ministers of Sweden and Denmark. He will also meet Martin Schulz, the president of the European Parliament. On Sunday, Cameron is then to host Donald Tusk, the president of the European council, for dinner at Downing Street.

Tusk will chair the summit next month and is the chief fixer for securing a deal between Cameron and the other 27 heads of EU governments that would boost the chances of a yes vote in Britain’s EU referendum. No 10 is officially happy to wait until 2017 to hold the referendum, but George Osborne is understood to determined to ensure that the referendum is held no later than 26 June. This would mean that a deal must be secured no later than at a second special EU summit at the end of February or the beginning of March.

The issue of penalising EU citizens working in Britain has long been the trickiest element in Cameron’s negotiation, previously dismissed by most of the EU as discriminatory and hence illegal under EU law. The proposed arrangement falls short of what Cameron has been demanding, but coupled with other welfare curbs being negotiated may be enough for him to claim a significant shift in EU practices.

British officials are adopting a cautious approach and are reluctant to suggest that the talks are on the verge of a breakthrough on the grounds that the negotiations are highly complex. In recent weeks there has been progress on the benefits issue, only for unease to emerge in Paris and Berlin on George Osborne’s plans to secure greater protections in the single market for non-eurozone members.

One UK source said there are hopes that there will be positive developments after the prime minister’s talks with the three EU leaders over the next three days. “It is very complex, there are lots of moving parts,” one UK official said. “There might be a bit more light in the next few days.”

One Tory source who is familiar with the negotiations said there are tentative signs of progress after fears earlier in the week that the chances of a deal were fading. “The balance has swung a bit to looking more positive than negative whereas a moment ago it was more negative than positive. The mood music seems to have changed a bit.”

Time is tight for finalising the terms of a settlement. Directly following his visit to Downing Street, Tusk is expected to circulate a text on Monday or Tuesday to all EU governments outlining the deal and giving government experts time to study the detail ahead of the summit.

Jonathan Faull, a veteran British eurocrat who is Juncker’s chief negotiator on the British question, said on Wednesday that elements of the agreement being sought would have “general application”, meaning that some changes demanded by Britain, if agreed, would apply to all EU countries and not only the UK.



This would appear to be the case with the potential breakthrough over welfare curbs for non-citizens of the resident country – for example, Poles working in Britain. In a rare public confirmation, Faull also said that both sides were discussing how to curb child benefits for EU citizens receiving the benefit in one country while their children lived in another EU country. Also up for negotiation were the entitlements of spouses from non-EU countries married to EU citizens living in the EU but not in their own countries.

The outlines of the proposed deal would represent a compromise, but one that favours Cameron and which is likely to be trumpeted as a major victory in the campaign to sell the deal to UK voters.

The initial Cameron demand – the purported aim being to reduce EU immigration to Britain – was to freeze in-work benefits such as tax credits for four years for non-British EU citizens working in the UK and enjoying free movement of labour rights, one of the pillars of the EU single market.

Under the compromise being negotiated, the welfare curbs would only be possible in an “emergency”, when the government feels that immigration levels were putting impossible strains on social and welfare systems. The agreement would not impinge on free movement of labour in the EU.

Until now it was believed that any emergency brake system would be subject to the authority of the European commission, meaning that Brussels would decide when, for example, Britain could step on the pedal.

But in another win for Cameron, the deal that is shaping up would leave such power with the European council grouping of 28 governments. The other governments are much less likely to deny an emergency brake request from one of their own.

Senior sources said, however, that the terms of the proposed welfare curbs were not yet settled, meaning it was not yet clear whether Cameron would win a four-year reprieve on payouts to EU citizens or whether the timeframe would be shorter.