A multibillion-pound free trade agreement withIndiahas long been touted as a big Brexit boon.
Cheaper clothes and shoes for British shoppers, a huge market forscotch whisky producersand luxury carmakers, and billions of pounds worth of extra trade are among the benefits of the agreement,which was finalised this week.
But all these have been overshadowed by arow over national insurance contributions (NICs). The government gave in to a demand that when Indian workers are seconded to the UK on short-term visas, both they and their employers should be exempted from NICs for up to three years. They will make social security payments in India instead – and the reverse applies to British workers in India.
The concession has been seized on by senior Tories, withKemi Badenochcalling it “two-tier taxes”.Nigel Faragesaid Keir Starmer had “sold out British workers to the highest degree”. Critics have also raised questions about the deal’s implications for immigration and farming. But do their claims stack up?
The NICs concession is expected to cost the exchequer about £100m in lost revenue, a government source told the Guardian.
Jonathan Reynolds, the business secretary, told broadcasters on Wednesday that this was “less than a tenth” of the £1bn in additional tax revenue the deal is expected to bring. According to the immigration services firm Vialto Partners, government figures show that about 20,000 Indian workers who came to the UK on company transfers could benefit.
Farage has claimed that half a million Indians arrived in the UK over the past two years and that “this deal will throw the doors open even wider” and make it cheaper to hire Indian workers over British ones – but all this is misleading, as most Indians applying for jobs based in the UK will not benefit at all.
In the grand scheme of government spending, £100m is small change, but ministers have so far refused to publish their assessment of the costs or impact the concession could have on the number of Indians who come to the UK temporarily on company transfers. This has fuelled speculation.
Ministers have, however, pointed out that reciprocal tax agreements of this kind – which are called double contribution conventions and are intended to stop workers temporarily seconded abroad from being taxed twice – are not uncommon.
The UK already has them with more than 50 countries, including the US, Canada and Japan. India has existing social security agreements with several European countries, such as Germany, France and the Netherlands.
The issue was alsoon the table during the talks under the Conservativeswhile Badenoch was trade secretary. A senior Indian official told the Financial Times that the Tory leader was talking “rubbish” as she had agreed with the principle of exempting temporary Indian employees from NICs.
Nonetheless,India’s boastful press release– calling the concession an “unprecedented achievement” that would “make Indian service providers significantly more competitive in the UK” – has made the politics of this awkward for the government.
And the fact that Rachel Reevesraised national insurance contributions for employersin her budget, a tax rise that only kicked in last month, means the wider context for it is particularly damaging.
Finally, the NICs issue was one of the longest-running sticking points in the trade talks andemerged as the final hurdle last weekbefore negotiators agreed the deal. This demonstrates that it is a significant concession and one the government dug its heels in over.
The fact that the deal does not include substantial numbers of extra visas for Indian workers – a key ask by Delhi in its trade negotiations – is a win.
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Labour has claimed that the Conservatives put visas on the table during their talks and that the current government secured a deal without changing its immigration policy.
One existing visa route for yoga instructors, musicians and chefs to come to the UK will be opened to Indian applicants, but they will need to meet the usual salary and skills requirements. The route is capped at 1,800 visas a year.
This is a long way from India’s initial demands, but that has not stopped Farage and some senior Tories from claiming the deal will lead to an influx of Indian immigrants.
Major service industries including the financial and legal sectors are not included in the deal, which has drawn criticism.
In parallel with the trade deal, negotiators have been trying to strike a bilateral investment treaty with India, which would benefit the City of London. Rishi Sunakcame close to finalising an agreementwhile he was prime minister last spring but wanted more for the services sector, which accounts for 80% of the economy.
Given the impact of Donald Trump’s tariffs, however, Labour ministers decided it was worth getting the tariff-busting deal over the line by separating it from the investment treaty. It offers some benefits to the services sector, most significantly by opening up some Indian government procurement for British firms for the first time, but by and large, the deal cuts tariffs on goods.
The deal will reduce UK import taxes on some Indian agricultural products, including frozen prawns. This has raised alarm about theimplications for British farming.
Officials have said the deal will benefit farmers by lifting India’s tariffs on British food exports, including lamb. Meanwhile, the UK is keeping tariffs in place on some agricultural products such as milled rice, where Indian exports could be damaging to British producers.