The UK has finally got a trade deal with India. Although negotiations started in early 2022 there was prep work going on back before I joined in 2020 (almost exactly five years ago to the day and I’ve been writing about the potential of a deal since January 2022). The ambition of Boris Johnson to get a deal done by Diwali 2022 was obviously not realised and so now, due to the hard work of five Trade Secretaries and as many Prime Ministers as well as countless officials, advisers, and negotiators, there has finally been a deal agreed.
Great news, right? Well, not everybody thinks so.
There has been a lot of anger over claims that firms operating in the UK and workers from India will be exempt from paying National Insurance Contributions. On the face of this it does feel outrageous given that it would seem that this gives an incentive to firms to give preference to Indian migrants when it comes to hiring decisions. This would be unfair at the best of the times but when people are already concerned about high levels of immigration and there are many British people who have never been in work, it does seem outrageous.
However, things are actually a bit more complicated than that. The measures only apply to Indian workers in the UK on temporary visas and the equivalent of National Insurance will still have to be paid in India so it does not give an advantage to Indian workers. What is more, it is a fairly common practice and the UK has equivalent agreements for social security contributions and benefit entitlement with a host of other countries. As such, it’s not really that big of a deal.
As an aside, it does highlight the issue with National Insurance Contributions though. Indian workers do not want to pay NICs in the UK because they (rightly) point out that they won’t be entitled to the State Pension. An issue in UK public policy is that their State Pension has been paid for by their own NICs. As such, it makes any discussion about introducing sensible reforms such as scrapping the Triple Lock almost impossible. I wrote a while ago on why ‘National Insurance’ is a misnomer and is deeply dishonest. For the most part, NI is a tax just like any other and so should be referred to as such and ultimately merged with Income Tax.
As for the agreement itself, I think it’s a very good deal. The UK government stuck to its guns on many of the points which the British public would have found unpalatable. For example, on immigration there will essentially be a handful of more visas in certain sectors which will make a negligible impact on the overall figures. What is more, the Indian government was pushing for a much longer timeframe for NICs exemptions and so the UK government and negotiators should be commended for not caving in order to get a deal at any cost.
More importantly, it has seen tariffs on key UK exports slashed. I’ve written before on why modern FTAs don’t add much value because they tend to focus on tariff elimination which was fine 50 years ago but now average tariffs rates tend to be very low on most goods (with the exception of agriculture) and so just focussing on them makes very little difference.
However, given just how protectionist India is with its incredibly high tariffs (over 100 per cent in many cases), any move towards liberalisation is to be welcomed. UK goods such as Scotch and automobiles will now be much more attractive to the massive and increasingly wealthy Indian population. This is, obviously, good news.
It also shows that tariffs do still matter. Trump’s very erratic trade policy has focussed on imposing high tariffs in order to get what he (thinks) he wants. As I wrote last year, there is a danger that the age of MFN is over and the WTO might not survive and so we will likely see a return to the bad old days where countries pretty much do what they want and their main tool will be tariffs. They still do obviously matter, and I say this as someone who worked on designing the UK’s MFN tariff (while getting lobbied by Big Margarine), but they are going to become more important. I am planning on writing something more in depth on why and the UK should amend the UKGT but that is a post for another day.
Regardless, tariffs do still matter. As such, it is still disappointing that the UK only partially liberalised its tariffs on agricultural products from India. These include sugar, rice, pork, chicken, eggs, and milled rice. In the majority of these cases this is just because the government caved into the rent-seeking NFU and various other groups such as Big Egg, Big Pig, and Big Sugar.
The government decided to put producer interests ahead of those of consumers. Despite a cost of living crisis with many British households facing food poverty, the government decided that they should not be able to get access to more affordable food. Yes, the sugar situation is more complicated given the unlawful subsidies the Indian government gives to its industry, but lowering imports would still be beneficial for UK households. The best option would have been to lower tariffs on sugar from India now so that bothe UK consumers and Indian exporters could have enjoyed the benefits before threatening to hike tariffs again and jeopardise the new jobs in the Indian sugar industry unless its government did scrapped its subsidies. It’s of course not all straightforward, especially in the case of Big Rice, but it is still sad to see that the UK government is still in the thrall of powerful and self-serving lobby groups within the agricultural sector.
However, I do not want to be too negative. The liberalisation on both sides will bring huge benefits and will be economically significant. It is also a real win for Global Britain and an actual Brexit benefit. The UK has managed to achieve what many commentators claimed was impossible in getting India to open its markets to such a large extent. It also shows that the UK can still achieve things and so should be confident about its place in the world.
Getting a pretty comprehensive deal achieved with a large, growing, and very closed economy is a great achievement. Well done to everyone involved!
Thanks as ever for reading. If I get a bit of free time and something looks interesting then I might write something tomorrow. Enjoy your weekend!