What deal has the government struck over Indian workers and National Insurance?

A political row has erupted over the ramifications of the UK’s newly-announced trade deal with India, after claims that exempting some Indian workers from National Insurance contributions could risk undercutting British workers.

Conservative leader Kemi Badenoch MP said the deal represented “two-tier taxes”, and claimed she had refused to sign off on a similar agreement during her time as business and trade secretary under the previous government.

Liberal Democrat deputy leader Daisy Cooper said the deal “risks undercutting British workers”, while Reform UK leader Nigel Farage has also warned of a “two-tier tax system” and claimed: “It is now 20% cheaper to hire Indians than British people.”

However, the business secretary Jonathan Reynolds has flatly denied that UK workers will be undercut as a result of the trade deal. He told the BBC: “There is no situation where I would ever tolerate British workers being undercut through any trade agreement we would sign. That is not part of this deal.”

And at Prime Minister’s Questions on Wednesday, Sir Keir Starmer hit back at criticism of the National Insurance exemption, saying it was “incoherent nonsense”.

We’ve not yet seen a detailed explanation in writing from the government on how the National Insurance exemption will work, and questions over the impact it could have remain. But we’ve set out what we know about the announcement so far—we’ll update this article as needed in the coming days.

What does the new UK-India trade deal involve?

The new deal, which has taken more than three years to negotiate, will make it cheaper and easier for the UK and India to buy and sell certain goods and services to each other.

Tariffs on whisky and gin exported to India from the UK will be halved, from 150% to 75%, before reducing to 40% by the 10th year of the deal. Car tariffs will fall from more than 100% to 10% under a quota. Taxes on India’s clothing and footwear exports will also be among those cut.

The UK government press release announcing the deal claimed it is expected to increase bilateral trade by £25.5 billion, UK GDP by £4.8 billion and wages by £2.2 billion each year “in the long run”.

But although negotiations on the trade deal have now concluded, it’s not yet been signed and it could reportedly take up to a year for it to come into force.

Who will be exempt from National Insurance?

Alongside the free trade agreement, the UK and India have agreed to negotiate a reciprocal Double Contributions Convention (DCC), which exempts some workers, and their employers, from making National Insurance contributions (NICs) for up to three years.

The National Insurance exemption does not apply to all Indian nationals working in the UK—though this hasn’t been made clear in some of the claims we’ve seen about the new rules.

According to trade minister Douglas Alexander, the deal will apply only to a “specific and limited” group of workers—employees from firms with operations in both the UK and India, seconded temporarily from one country to another. The exemption does not apply to Indian nationals whose employers are based only in the UK.

The exemption is reciprocal and will therefore also apply to British workers similarly seconded by their companies to work in India, meaning they won’t have to make Indian social security payments for up to three years.

This type of arrangement is not unique to the Indian trade agreement. The UK currently has DCCs with Chile, Japan and South Korea, and agreements covering social security contributions and benefit entitlements with around 50 countries. In addition, it already exempts all foreign temporary workers from one year of NICs.

Although the deal means some Indian workers will be exempt from paying NICs in the UK for up to three years, it specifies that this has no impact on the requirement to pay the UK immigration health surcharge. This enables immigrants to use the NHS free of charge during their time in the UK, and currently costs £1,035 per year.

It’s also worth noting visas for such temporary workers are usually issued with a “no recourse to public funds” condition, preventing those workers from claiming most benefits, including tax credits and housing assistance.

What impact will the National Insurance exemption have?

Many of the claims we’ve seen about the National Insurance exemption centre on its likely impact. Assessing these claims is particularly difficult given that the government has not published an impact assessment on the changes.

Critics of the exemption have argued that it could lead to British workers being undercut, claiming Indian firms operating in the UK could find it cheaper to employ Indian workers.

The Indian government hailed the National Insurance exemption in its own press release on the deal, claiming it “will lead to significant financial gains for the Indian service providers and enhance their competitiveness in the UK market”.

And Nasscom, a trade body representing the technology industry in India, said the inclusion of the DCC was a “big win”, adding: “It will significantly boost opportunities, making the UK a more competitive and attractive destination for investments.”

But Indian firms bringing secondees to the UK will face a range of other costs, and it remains unclear what the overall impact might be. A partner at the immigration services firm Vialto Partners told the Times: “This will help firms where the kind of specialist staff they need for particular projects are not available in the UK but taken in round it will not provide them with savings because of the other costs associated with such transfers.”

Although the government has not published an impact assessment on the National Insurance exemption, it has estimated that the deal may cost £100 million a year. We don’t have more detail on that figure or know what assumptions it is based on, however.