Britain has recently restarted trade negotiations with India after they stalled in the spring. With general elections in the UK and India now out of the way, both governments appear keen to secure a trade deal. For Britain, this will build on momentum from her recent entry to CPTPP, the Pacific trade bloc, and will be the largest trade agreement signed since officially leaving the European Union (EU) in 2020. For India, this would be a significant step towards greater alignment with the West, offering further leverage for any trade negotiations with the EU. 

All deals come with a price, however. Negotiations stalled in part because the then-Conservative Government in Britain was uneasy about India’s demand to exempt Indian workers in the UK from National Insurance contributions. Former Home Secretary, Suella Braverman, put her head above the parapet by stating that the UK should not make any allowances for increased Indian immigration and criticised India for the large number of Indians who overstay their visas in the UK. Unsurprisingly, this didn’t go down well. India swiftly retaliated by slowing down visa applications from the UK to India, and the trade negotiations went nowhere. 

Although negotiations have restarted, this issue has not gone away. If anything, the recent debate around Indian immigration into the US, as well as countries like Canada and Australia, shows that it is as politically pertinent as ever, even following the replacement of a Conservative Government with a Labour one in Britain. A National Insurance exemption — in line with the “social security pacts” that India has signed with a number of other countries — is likely to be on the table. 

While social security pacts are not uncommon, the Government should resist signing one in this deal. Though modern trade agreements go beyond tariffs — many focus on non-tariff barriers like regulations and recognition of qualifications — National Insurance exemptions should be kept outside the scope of this agreement. Indeed, the UK has historically signed such arrangements outside FTA talks, and should continue to do so where appropriate. 

First, Britain already offers some exemptions to posted workers coming from abroad, if the company can demonstrate that any foreign workers are in the UK on an assignment for their employer in their home country temporarily. The need for a bespoke deal is minimal. Second, social security agreements work best when they are reciprocal and have small or relatively even numbers of workers going between each country, as is the case with the agreements between the UK and Japan or the USA, for example. Third, it must represent value for money, and the British government previously refused such an agreement with India on these grounds in 2011. It is highly unlikely that the Government would waive £500 million a year in National Insurance receipts and agree a deal today. 

There are wider political problems with this proposal, as well. While National Insurance is nominally a contribution to Britain’s social security system, in reality it is an additional income tax. Its receipts are not hypothecated to welfare spending, despite many people’s belief that they are. The sensible solution is, eventually, to roll National Insurance into Income Tax and do away with it as a separate tax, making official what is currently a de facto reality. But we have to deal with reality today, and such an exemption would be a large liability for the taxpayer, at a time when it cannot afford one.

While migrants from India on temporary working visas might not be eligible for welfare, thanks to Britain’s “No Recourse to Public Funds” rules, there are significant grounds to be sceptical about the reality of this. First, as the former Home Secretary noted, Indians represent a large proportion of people who overstay their visas in the UK, and drift into the asylum system or grey economy, both of which come with significant costs to the British taxpayer. Second, the web of exemptions to the “No Recourse to Public Funds” rules operated by local councils — usually surrounding homelessness and the welfare of dependents — means there are significant loopholes to these rules, coming with high costs to the taxpayer. 

We are simply getting much less bang for buck per each new arrival working in this country

These matter because of the changing profile of Indian immigration to the UK. As the MP Neil O’Brien has shown, the earnings of Indian migrants to the UK have collapsed compared to the British average in the last few years. We are simply getting much less bang for buck per each new arrival working in this country. In this context, tax exemptions for new arrivals — even if temporary — represent a loss of tax revenue today, and increase the likelihood of an increased tax burden in the future. This is further complicated by immediate voting rights granted to Indian residents in the UK, as Commonwealth citizens. Those with full voting rights should pay the same taxes as British citizens. Otherwise we are left with a perverse situation of “representation without taxation”.

India has made expanding emigration central to its foreign policy in recent years, with huge numbers migrating to countries like Britain, Canada, Australia, the United States and beyond. India has recently signed a new mobility agreement with Australia, providing enhanced visas for Indians in Australia, with pathways to permanent residence, and the automatic recognition of Indian qualifications in Australia. Australia looks intent on copying the same policies which condemned the Conservatives to defeat in Britain in 2024, and which are likely to lead to the electoral annihilation of the Canadian Liberal Party at the next election. 

Britain, therefore, has a decent piece of leverage here, and should refuse to agree to a likely asymmetrical social security agreement with India. A trade deal would be welcome. Professional services, the whisky industry, and flagship businesses like JCB would benefit from greater trade. These are all prizes worth having, but the British government must beware including any sort of migration component in the agreement. After all, it was migration which killed our membership of the EU in 2016, and migration which ended the Tories’ time in office in 2024. It may do so again, this time for Labour.