PRESS ASSOCIATION -- Possible legal action by the European Commission over the issue of Britain limiting benefits claims for those overseas could leave taxpayers facing a £2bn bill, Work and Pensions Secretary Iain Duncan Smith has said.
He told the Daily Telegraph the move threatened to break the "vital link" which should exist between taxpayers and their own government.
Mr Duncan Smith is currently spearheading reforms to the country's benefits system, bringing in the Universal Credit.
The commission is reportedly threatening legal action against the UK because of the "right to reside" element of the habitual residence test.
Britain has been given two months to fall into line with EU rules and could face the prospect of the commission taking the case to the EU's Court of Justice, it was reported.
Mr Duncan Smith said: "These new proposals pose a fundamental challenge to the UK's social contract. They could mean the British taxpayer paying out over £2bn extra a year in benefits to people who have no connection to our country and who have never paid in a penny in tax. This threatens to break the vital link which should exist between taxpayers and their own government."
He added: "The EU settlement is supposed to protect the right of member states to make their own social security arrangements. But we are now seeing a rising tide of judgments from the European institutions using other legal avenues to erode away these rights, and we should be gravely concerned.
"As if this week's decision was not bad enough, we are also fighting increasing demands for the UK to pay benefits to those who have long since moved abroad, and who may never have made more than a token contribution to UK society."