The India trade deal is yet another own goal for Starmer ...Middle East

On paper, the trade deal with India, which boosts the size of the UK economy by £4.8 billion by 2040, should have been a win for Prime Minister Sir Keir Starmer. The reality was rather different.

Sangeeta Khorana, Professor of International Trade Policy at Aston University, told The i Paper it’s an “ambitious and momentous deal.”

“India has very strong growth rates at the moment and consumer incomes are growing so it offers a sea of opportunities for British businesses,” she added.

The deal was three years in the negotiating and marks a new chapter between the world’s fifth and sixth largest economies in a world destabilised by the whims of US President Donald Trump.

The accord is expected to be officially signed off in person in a trip to Delhi later in the year by the Prime Minister and his counterpart Narendra Modi. On Tuesday, Downing Street released footage of a phone call between the pair.

But by Wednesday morning, the Government was forced into a defensive crouch over its plans after the Tories and Reform UK said British workers would be undercut by an agreement for some Indian nationals to pay less tax.

Indian employees of Indian firms seconded to the UK won’t have to pay Britain’s national insurance payroll tax for three years, with the same terms applying to British employees and firms in India at a cost of less than £100m for a deal worth ten times that amount.

The UK has similar tax arrangements with other countries and blocs, including the US, EU, Canada, and Japan. Known as a double contribution convention, it’s based on the principle that workers shouldn’t be paying twice for social security taxes that they will not benefit from. Indian workers and businesses based in the UK will still have to pay the equivalent tax in India, as well as sponsorship fees and an NHS surcharge.

Crucially, this deal only covers Indian workers temporarily assigned by their companies. Indian firms are paying those employees, and it does not apply to Indians more generally. This doesn’t mean UK businesses can instantly replace all their staff with Indian workers because companies face restrictive conditions when sending secondees on work visas.

So far, so reasonable. Right? Not if you look at some of the reactions.

Instead, the double taxation agreement overshadowed the deal, which had been intended as positive news for Starmer as he attempts to recover from poor local election results and show progress on his overriding priority of boosting economic growth.

The trade deal with India will raise living standards, put more money in the pockets of British working people, and deepen the unique ties between our two nations. pic.twitter.com/TAXsPPN9Pv

But the attacks highlighted a Labour bruise that the opposition keeps kicking. Labour’s handling of the national insurance contributions hike remains a contentious issue; the tax rise negatively impacted business confidence and hiring.

As Allie Renison, a trade expert who has advised Government, pointed out, under a Conservative-Liberal Democrat coalition in 2012, the UK and Chile signed an agreement exempting temporary workers from social security contributions for five years.

“No party has sought to change the broader rules whereby all temporary foreign workers are exempted from paying national insurance for 12 months, deal or no deal,” she told The i Paper.

But, in politics timing is everything and the momentum is with Reform UK even if their attack line is disingenuous. Far from being a two-tier deal, surely this could arguably be seen as a key benefit of Brexit? Not if you put the radio on.

“I cannot believe the sheer stupidity of this Labour Government. No wonder it was announced after the elections last Thursday”, Reform leader Nigel Farage told LBC on Wednesday. This undercuts British workers, and you think of it, and a big multinational employer can bring Indians into work in Britain, not pay employers national insurance, but the bloke running your local pub has just had a massive tax hike for all the staff that work for him.”

The Conservatives followed suit, and you have only to look at the polling to see why. A fresh YouGov survey released Wednesday put Reform at 29 per cent, up three points from last week and the Tories are down three points to 17 per cent, their lowest rating since 2019. Labour are on 22 per cent.

As Business Secretary in the last Tory administration, Kemi Badenoch declined to sign off the India deal because, as she explained over Twitter: “1. Tax refunds for Indians not available to us. 2. Visa requests are too high. 3. Ceramics and aluminium industries would be screwed.”

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Come Prime Minister’s Questions at noon, Starmer had worked himself up into a fury. “The criticism on the double taxation is incoherent nonsense. It’s a benefit for working people. It’s in the agreements that we’ve already got with 50 other countries. And if the member for Clacton or the Leader of the Opposition [Farage or Badenoch are] seriously suggesting that they’re going to tear up agreements with 50 other countries, create a massive hole in our economy, they should get up, and they should say so,” he said.

But there is a feeling among Labour MPs that the Government is bellowing into a void. “It’s the online shouting contest and the people who shout the loudest win, even if they’re wrong,” one Labour MP told The i Paper on Wednesday.

Another Labour MP remarked gloomily: “The comms on this have been a mess as they have been from the start. Maybe No 10 was simply blindsided by the politics of this because it’s what happens in all of the trade deals, but the world has changed after last week” [at the local elections when Reform won lots of council seats].

“This was supposed to be a good news story, how can they have screwed it up again?” the MP added. Rather than blaming Reform and the Tories for misrepresenting the policy, Labour anger is instead directed at No 10.

With a US economic deal perhaps as soon as this week – although next week is looking more likely – and a reset with the European Union in the next fortnight, the Government has a series of potentially significant stories to sell. How well they can tell them is the concern for the wider Labour Party.

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