EU to take Britain to court over "discriminatory" welfare system

The European Commission will say it is taking Britain to court later on Thursday over the way it hands out welfare benefits, arguing the current UK system discriminates against other European Union nationals, said an EU source.

The EU executive told Britain in 2011 to end what is said was the unfair practice of asking non-British passport holders from elsewhere in the EU to pass a "right to reside" test to access a range of benefits including unemployment payments.

But Prime Minister David Cameron's Conservative-led government, which is trying to cut a big public deficit while addressing public unease about immigration and the abuse of the country's welfare system, has retained the test.

"We are asking the UK to change its resident permit test because it is a discrimination against other EU citizens in our open internal market," the EU source told Reuters. The EU executive pursues such cases via the European Court of Justice in Luxembourg.

The move comes as Britain is debating whether to remain part of the 27-nation bloc after Cameron promised to hold a referendum on the issue if he wins the next national election in 2015, and is likely to be seized upon by eurosceptics as further evidence that Britain should leave the EU.

Peter Lilley, a Conservative MP and former minister, told BBC radio the European Commission's intervention would be "costly, unwelcome and undemocratic", saying it showed the EU executive was trying to "extend its powers".