The UK and India have struck an “ambitious” trade deal that will slash tariffs on products such as whisky and gin.
The agreement will also see Indian tariffs cut on cosmetics and medical devices and will deliver a £4.8bn boost to the UK economy, according to the government.
It is also expected to increase bilateral trade by £25.5bn, UK GDP by £4.8bn and wages by £2.2bn each year in the long term.
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The news will be a welcome boost for the government following poor local election results, which saw Labour lose the Runcorn by-election and control of Doncaster Council to a resurgent Reform UK.
What will also be touted as a victory for Downing Street is the fact the government managed to strike a deal with India before the White House.
However, shortly after the announcement it was revealed there is a “double contribution convention”, where British employers will not have to pay national insurance for Indian workers for three years, making it cheaper to employ Indians than anybody else.
Just one month ago, UK employers’ national insurance was increased to 15% and the threshold at which employers start paying it was reduced from £9,100 to £5,000, meaning it is now more expensive to employ staff.
Sir Keir Starmer with the Indian PM, Narendra Modi at the G20 summit in Brazil in November 2024. Pic: Reuters
Indian govt: ‘Huge win’
Conservative leader Kemi Badenoch said: “When Labour negotiates Britain loses.”
She said the move means ceramics and aluminium industries “would be screwed”.
Indian nationals accounted for the highest proportion of work visas issued last year, and were the second highest proportion of study visas.
A total of 81,463 Indian nationals were granted work visas – 22% of all work visas, with Pakistan coming in next at 9%.
The Indian government said the NIC exemption was a “huge win” and was an “unprecedented achievement”.
“This will make Indian service providers significantly more competitive in the UK,” a statement said.
Sir Keir Starmer hailed the “historic day for the United Kingdom and for India”.
“This is the biggest trade deal that we, the UK, have done since we left the EU,” the prime minister said.
What trade-offs are in the ‘historic’ deal with India?
This is the most significant trade deal Britain has negotiated since Brexit. It has been three years in the making with round the clock negotiations taking place in recent days.
Britain and India were coming from very different starting points. India’s economy is notoriously protectionist, with average tariff rates floating at around 130%. The UK, by comparison, is a very open economy. Our tariff rates hover around 5%. It means there were many prizes on offer for UK exporters, who are eyeing up a rapidly growing economy with increasingly powerful consumers.
The government will point to considerable concessions on 90% of tariff lines, 85% of them will go down to zero within the decade. It includes wins on whisky, which within ten years will be halved from the current 150%. No other country has managed to get India to move on that.
Of course there are trade-offs involved. The UK has agreed to lower tariffs on Indian textiles and apparel- a big employer in India. It will also make it easier for Indian professionals to come to the UK, something the Indians have been pushing hard on. However, there will be no formal changes to immigration policy.
Both countries have also refused to budge on certain industries. The UK has not lowered tariffs on milled rice, out of fear it could decimate native industries. The same applies to dairy for the Indians. Both sides have agreed quotas on cars for the same reason.
The Indians were pushing for an exemption for its high emission industries from the UK’s upcoming carbon tax. It is understood that will not happen.
“And it’s the most ambitious trade deal that India has ever done. And this will be measured in billions of pounds into our economy and jobs across the whole of the United Kingdom.
“So it is a really important, significant day. “
In a post on X, Indian Prime Minister Narendra Modi also welcomed the agreement as a “historic milestone” and added: “I look forward to welcoming PM Starmer to India soon.”
Double contribution convention
Conservative shadow trade minister Harriet Baldwin told the Commons: “This government is literally putting up taxes for British workers but cutting them for Indian workers.”
She asked why the government had not mentioned the double contribution convention when Mr Modi did.
Trade minister Douglas Alexander said it was a “reciprocal agreement that will benefit British workers and their employers as the opportunity in India expands”.
He said the convention will only cover a “specific and limited” group of Indian business people for three years.
Mr Alexander added: “The UK has not given away visas or created new routes as part of this deal.”
Negotiations for the deal relaunched in March after stalling under the Tory government over issues including trade standards and the relaxation of visa rules for Indian workers.
Which industries are affected?
Overall, 90% of tariff lines will be reduced under the deal, with 85% of those becoming fully tariff-free within a decade.
Whisky and gin tariffs will be halved from 150% to 75% before falling to 40% by year ten of the deal, while automotive tariffs will go from more than 100% to 10% under a quota, the Department for Business and Trade (DBT) said.
For Indian consumers, there will be reduced tariffs on cosmetics, aerospace, lamb, medical devices, salmon, electrical machinery, soft drinks, chocolate and biscuits.
Meanwhile, British shoppers could see cheaper prices and more choice on products including clothes, footwear, and food products including frozen prawns as the UK liberalises tariffs.
India’s trade ministry said that under the deal, 99% of Indian exports will benefit from zero duty, Britain will remove a tariff on textile imports and Indian employees working in the UK will be exempt from social security payments for three years.
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Shadow trade secretary Andrew Griffith added: “It’s good to see the government recognise that reducing cost and burdens on businesses in international trade is a good thing, and that thanks to Brexit we can do.
“But it would be even better if they would apply the same reasoning to our domestic economy, where they remain intent on raising taxes, energy costs and regulatory burdens.”
The news was also welcomed by business group the British Chamber of Commerce, which said it was a “welcome lift for our exporters”.
William Bain, head of trade policy, said: ”Against the backdrop of mounting trade uncertainty across the globe, these tariff reductions will be a big relief. Products from Scotch whisky to clothing will benefit and this will give UK companies exporting to India a clear edge on increasing sales.
“The proposals for a follow-up investment treaty will also provide a solid platform to grow manufacturing and other sectors in our two economies.”
