Sir Keir Starmer has been accused of imposing a "two-tier tax” system that will inflict pain on British taxpayers after it emerged that Indian workers and businesses will be exempt from paying National Insurance.
As part of the Prime Minister's landmark trade deal with Narendra Modi, Indian workers migrating to Britain and UK citizens moving to India will not have to pay NI contributions in both countries for the first three years.
This is despite the Chancellor Rachel Reeves recently hiking NIC for British workers and companies to plug a £22 billion “black hole” in the public finances left by the previous Tory government.
The change is understood to have been a key demand made by Dehli who hailed the three-years exemption in a press release as a “huge win” that will “make Indian service providers significantly more competitive in the UK.”
Ministers say the long-coveted agreement will add £4.8 billion a year to the economy by 2040, with dramatic reductions to levies on scotch whisky, car and other exports from Britain.
Britain has 17 similar reciprocal agreements with countries including the US, EU and Japan, but political opponents have been quick to attack the new arrangement following the rise in employer national insurance this year.
Tory leader Kemi Badenoch, a former Business and Trade Secretary, said: “This is two-tier taxes from two-tier Keir.I refused to sign this deal because: Tax refunds for Indians not available to us Visa requests too high Ceramics and Aluminium industries would be screwed... When Labour negotiates Britain loses."
This is two-tier taxes from two-tier Keir.
— Kemi Badenoch (@KemiBadenoch) May 6, 2025
I refused to sign this deal because:
1️⃣ Tax refunds for Indians not available to us
2️⃣ Visa requests too high
3️⃣ Ceramics and Aluminium industries would be screwed.
Andrew is 100% correct.
When Labour negotiates Britain loses. https://t.co/TiC3gOc21o
Meanwhile, Shadow Justice Secretary Robert Jenrick claimed the treaty would leave UK workers coming last.
He said: “This trade deal means Indian workers here for less than three years will not pay National Insurance in the UK.
“Starmer has hiked National Insurance on Brits while giving an exemption to Indian migrants. British workers come last in Starmer’s Britain.”
Reform UK leader Nigel Farage described the deal as "truly appalling", adding: "This Government doesn't give a damn about working people. The Labour Party has this time in a big, big way betrayed working Britain."
Two-tier Keir betrays British workers. pic.twitter.com/4Aiw7W8lBf
— Nigel Farage MP (@Nigel_Farage) May 6, 2025
It is unclear at present how many Indians and businesses will benefit from the deal, which was signed after three years of post-Brexit negotiations.
Ministers have defended the convention by arguing it will also benefit UK workers in India and pointing out it will only cover a limited group of Indian workers.The agreement does not apply to all Indian workers in the UK.
Business Secretary Jonathan Reynolds said the arrangement would apply to inter-company transfers between the UK and India, ensuring that workers moved to and from either country do not simultaneously pay into both social security systems.
When British workers move to India they will continue to pay into the UK system, and when Indian workers come to Britain they will pay into their system and not the UK's.
"I think some people are getting a little bit carried away as to what this actually means," he said.
"It's very specific as to who this applies to and obviously people were in the UK they would still be paying income tax, they would still be paying, for instance, the health surcharge and they wouldn't be eligible for benefits from the national insurance system."
Our landmark agreement with India is the largest ever trade deal secured by the UK.
— Jonathan Reynolds (@jreynoldsMP) May 6, 2025
This deal will help deliver our Plan for Change, putting more money in working people's pockets, boosting our economy and bolstering British business. pic.twitter.com/FvrstC0oR7
But Shadow business minister Dame Harriett Baldwin told MPs the arrangement would be "subsidising Indian labour while undercutting British workers".
"A double contribution convention will come at a significant cost to the British taxpayer and to British businesses," she told the Commons on Tuesday.
Rain Newton-Smith, chief executive of the Confederation of British Industry (CBI), said the UK's trade deal with India was a "beacon of hope amidst the spectre of protectionism".
"In its mission for growth, it is right that the Government seeks to strengthen and expand the UK's trading relationships with partners around the world," she said.
Mr Starmer said: "We are now in a new era for trade and the economy. That means going further and faster to strengthen the UK's economy, putting more money in working people's pockets."
He added: "Today we have agreed a landmark deal with India - one of the fastest growing economies in the world, which will grow the economy and deliver for British people and business."
Indian Prime Minister Modi described it as a "historic milestone" and an "ambitious and mutually beneficial" trade agreement that will "catalyse trade, investment, growth, job creation, and innovation in both our economies".
"I look forward to welcoming PM Starmer to India soon," he added.
More than a dozen rounds of talks involving successive governments have taken place since 2022 with the aim of securing a trade pact with India, which is forecast to become the world's third largest economy.
Key sticking points had included high tariffs on Scotch whisky in India and visa rules for Indian students and professionals.
Mr Reynolds and Indian commerce minister Piyush Goyal held final talks in London last week after relaunching negotiations two months ago.
The deal means the UK will do significantly more business with the fast-growing economy of 1.4 billion people.
It is estimated to add £4.8 billion to gross domestic product, £2.2 billion to wages and £25.5 billion to bilateral trade each year from 2040, the Government said.
The Government said the deal means tariff reductions on 90% of exports that currently have levies, while 85% will be fully tariff-free within a decade.
Whisky and gin tariffs will be halved from 150% to 75% before reducing to 40% by the 10th year of the deal, while automotive tariffs will fall from over 100% to 10%.
It provides a boost to the two sectors which look set to be hit especially hard by Donald Trump's tariffs, which sent shockwaves through the global trading system last month.
India has also agreed to reduce tariffs on medical devices, advanced machinery, and lamb.
Based on 2022 trade, this amounts to India cutting tariffs worth more than £400 million when the deal comes into force, which will more than double to around £900 million after 10 years.
On the other side, as part of the negotiations Britain has agreed to reduce or eliminate tariffs on Indian imports, including textiles, apparel, and footwear, and some food products like frozen prawns.
This is expected to increase competition between suppliers and result in lower prices in shops for British consumers.
Meanwhile, a new cap on the number of Indian professionals who can come to the UK - musicians, chefs, and yogis - was agreed as part of the negotiations.
The changes are expected to make it more straightforward for such professionals to apply for a visa.
The Business Secretary said he expected the free trade agreement with India to come into effect in around a year's time.
"In times of global uncertainty, a pragmatic approach to global trade that provides businesses and consumers with stability is more important than ever," he said.
