Starmer’s Indian takeaway

If you’re looking for some light and insubstantive summer reading, you could do worse than Keir Starmer’s final Substack post as Prime Minister.

Subtitled “two years in government, what we’ve achieved, and what comes next”, this was Starmer’s attempt to justify his time in Number 10. If there’s one note of truth amongst all of the spin, it’s that “[his] record speaks for itself”. Starmer’s strongest case for himself is a mixture of half-truths, dodgy statistical analysis, and actively harmful policies which are celebrated as victories.

This Government’s free trade agreement with India, which came into force in the dying days of the Starmer Government, sits across all those categories.

The Indian Government is highly unusual in its approach to trade agreements. Unlike most other countries, India has a long-standing policy of making trade deals conditional on favourable treatment in the immigration system. That’s because, as part of its economic development policy, India relies on sending workers overseas in the hopes that they’ll send money home in the form of remittances. 

Under the terms of this agreement, Indian companies will be able to transfer their workers to this country far more easily

This deal, sadly, is no different. Under the terms of this agreement, Indian companies will be able to transfer their workers to this country far more easily. Once they’re here, those workers will be able to avoid National Insurance for up to five years, needing only to pay into the Indian social security system — payments which are, unsurprisingly, much lower than here in the UK. This national insurance holiday will make it much cheaper to hire Indian workers, in fields like IT and engineering, than to hire domestic talent. Remarkably, the original terms of the deal would have seen this national insurance holiday extend to three years, but in the months between agreement and implementation, Starmer somehow found a way to make this deal even worse, by extending the exemption to five years.

If we imagine a British IT firm, set to hire a computer programmer for £60,000 a year — to hire them, an employer must pay £8,250 in national insurance, on top of that baseline £60,000 salary. That totals £68,250.

Their Indian competitor, to employ an Indian here in Britain on the same salary, would only need to pay about £1,470 to the Indian Employee Provident Fund, mandatory contributions to which are capped at 15,000 rupees a month, or about £120. That totals £61,470.

So under the Government’s deal  it would be at least 10 percent cheaper to hire an Indian worker over a British one

So under the Government’s deal  it would be at least 10 percent cheaper to hire an Indian worker over a British one. Over the five year exemption period, the savings would amount to nearly £34,000. To undermine our own workforce so spectacularly is nothing short of absurd.

This undercutting is made possible by something called a Double Contribution Convention. DCCs are designed to stop highly-skilled workers from paying into two different social security systems.

We have agreements like these with other countries, which aim to simplify intra-company transfers for international businesses.  It means that, say, a Japanese engineer could come to Britain for two years, to work in a specialised role, and could do so without paying into both the Japanese social security system and the British welfare state at the same time.  

However, these agreements are usually struck with countries that have compatible economies, similar educational outcomes, and comparable social security systems – like Canada, or Japan. India is by far the largest and least wealthy country on the list.

In exchange for a deal with India, this Government has chosen to sell out skilled British workers, who’ve worked hard to get where they are, by allowing Indian firms to undercut them. We will see highly-skilled British workers, in cutting-edge fields like engineering, priced out by Indian workers. Given the relative markets in the UK and in India, we should not expect this always to be a like-for-like swap in terms of talent.

This is a model that we’ve seen take hold in the United States, with Indian consultancy firms leasing their workers to American companies, who are then able to pay an Indian worker far less than they would need to pay an American. The result has been a massive expansion in the number of lower-cost Indian workers, at the expense of American workers.

Some limited trade benefits at the margins cannot possibly be worth imposing yet more mass migration on the British people, who have never asked for this and who have certainly never voted for it. Most other countries are perfectly happy to strike trade deals without forcing us to undercut our own workforce. We should have expected India to do the same.