The India-UK Free Trade Agreement (FTA), recently learnt, has attracted some attention for one of its benefits enabling Indian workers on temporary assignments in the UK to avoid paying approximately 20% of their salaries while working in the UK, specifically due to a provision enabling them to avoid paying UK National Insurance (NI) contributions for a period of up to three years. Although the FTA is aimed at enhancing bilateral trade and economic cooperation, there are prevailing discussions regarding its fairness and its potential effects on British working individuals.

Key Provisions of the Agreement:

Indians recognized as professionals that are intra-company transferees in the UK by their employer are exempted from NI payments for a period of three years under the FTA. This is covered by the Double contributions Convention (DCC) aimed at preventing double social security contributions. The Indian Ministry of Commerce has estimated that the number of IT sector employees that could benefit from this development could be over 60000. This will greatly enhance Indian firms’ competitiveness and save costs in the UK market. 

British workers seconded to India will also be exempt from social security contributions, for the same time period. There are precedents for these reciprocal arrangements; the UK has relevant agreements with Japan, South Korea and Chile.

Economic Implications:

According to the UK government, The FTA will add £25.5 billion to bilateral trade and will increase UK GDP by £4.8 billion per year in the long term. Tariffs on 90% of UK exports to India, such as whisky, cars, medical devices and others, will be eliminated, which the government estimates can save UK exporters around £900 million on an annual basis over the next 10 years.

Criticism and Concerns:

While there will be economic advantages, many people have criticized the NI exemption. Critics say that it will create a “two-tier tax system” which benefits foreign workers and discriminates against British workers. It has been strongly opposed by former UK Business Secretary, Kemi Badenoch, and Reform UK head, Nigel Farage. Farage has claimed that the deal could cost the UK Treasury lost tax revenue of £200 million a year.

However, the UK Trade Minister Jonathan Reynolds rejected these concerns, saying the exemption only applies to a very narrow category of workers and is in line with arrangements that the UK already has with more than 50 other countries.