UK-India trade deal talks hit impasse over social security payments

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India’s attempts to claw back social security payments worth tens of millions of pounds for its workers in the UK have become a sticking point in trade talks between the two countries.

Kemi Badenoch, Britain’s trade secretary, is said by allies to be “keen to avoid” such a sensitive concession, which would benefit Indian workers, notably in the IT sector, who come to the UK on temporary contracts.

In a sign of tensions around the issue, Tory officials claimed that a visit by Jonathan Reynolds, Labour’s business and trade spokesperson, to New Delhi this week could have “reignited” the long-standing Indian request.

Reynolds told the Financial Times that the claim was “ridiculous” and that he had not been engaged in any “shadow negotiation” during his talks with India’s commerce minister, Piyush Goyal, in the capital.

Reynolds said a Labour government would seek a mutually beneficial free- trade agreement (FTA) with India if Rishi Sunak, UK prime minister, did not conclude one this year.

Time is short for negotiators because voting in India’s election is expected to start in April and the UK election is expected in the autumn; the next few weeks are expected to be crucial for the talks.

Moore Kingston Smith, a business consultancy that works closely with Indian clients, estimates that there were about 22,000 new Indian nationals on secondment to Britain last year and that a social security deal could cost the UK exchequer roughly £200mn

The idea is also politically sensitive, since a UK social security deal would benefit Infosys, the IT company founded by Sunak’s father-in-law, Narayana Murthy, and its workers. Sunak’s wife, Akshata Murty, has shares in the company worth an estimated £700mn. 

Officials on both sides of the negotiations have confirmed that India’s demand — which has been a feature of the negotiation for at least two years — remains on the table and is contentious.

“Trade deals are never simple and India is among the most difficult and requires careful handling,” said one ally of Badenoch. “It would be very disappointing if Labour’s decision to meet the Indian negotiators has reignited requests that the trade secretary is keen to avoid.”

Labour officials see the attempt to link Reynolds’ visit to New Delhi and the impasse as a sign that Sunak’s government is looking for a scapegoat if the vaunted FTA, the most important for Britain since Brexit, fails to materialise.

Talks have dragged on for months and missed former prime minister Boris Johnson’s deadline of a deal by Diwali in October 2022. Hopes of a deal to coincide with the Cricket World Cup, hosted by India in autumn last year, were also dashed.

Moore Kingston Smith outlined the case for a social security agreement in a note in 2020: “Indian employees working in the UK may be required to contribute towards both the Indian and the UK social security schemes,” it said.

It noted that after a grace period of a year spent working in the UK, employer and employee are liable to national insurance contributions, in the same way as a UK local hire. The minimum period of NI contributions to gain entitlement to a state pension is 10 years.

British officials said the FTA discussions focused on business mobility, which is different to immigration because it covers travel only for specific and temporary business purposes, notably intra-company transfers. Indian nationals accounted for about one-third of UK “worker” visa grants last year.

The UK business and trade department said: “The UK and India continue to work towards an ambitious trade deal.

“While we do not comment on the details of live negotiations, we continue to actively engage with India and are clear that we will only sign a deal that is fair, balanced and ultimately in the best interests of the British people and the economy.” The Indian government declined to comment.

The trade pact, if reached, would be India’s deepest FTA yet and one of the most significant for the UK since it left the EU. Britain wants India to cut tariffs on goods such as Scotch whisky while India wants lower duties on its textile exports, but mobility issues are a big factor.

Other differences have resurfaced during the talks, including Britain’s push for India to open up its protected professional services, including the legal sector, to UK entrants. 

Indian officials have argued that the UK already has low tariff rates for its own reasons, while India does not, so New Delhi is looking for other gains from a trade deal.

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