Britain’s insurance break for Indian workers logical, neutral on immigration, says UKIBC’s chair Heald

UK-India Business Council's chair Richard Heald.

UK-India Business Council's chair Richard Heald has defended a provision of the India-UK free-trade agreement (FTA) that has sparked a row in his country over a potential two-tier tax system.

The deal, signed on May 6, exempts short-term Indian workers from national insurance (NI) contributions for three years.

In an interview of Moneycontrol, Heald said the exemption is “entirely logical”, as British workers in India aren’t subject to such levies. The exemption is not an open door for immigration from India on a permanent basis, since the UK has not increased the scope or number of temporary visas for Indians. Edited excerpts of the interview:

India and the UK have concluded an FTA after more than three years of talks. What is the biggest highlight of this trade agreement for you?

With the complications of 26 chapters, that the fifth and the sixth largest economies in the world can agree to a Free Trade Agreement (FTA) of this magnitude in three years speaks of the intensity and seriousness of the relationship. Moreover, the benefits to both India and the UK are palpable and very high underscoring the substance of the Agreement. The UK government estimates that the deal will result in a £25.5 billion addition to bilateral trade, adding some £4.8billion a year to UK’s economy and I would imagine there will be similar benefits for India. Moreover, the benefits will extend beyond this.

The FTA encourage and catalyse co-development, co-creation and co-manufacturing between the India and the UK in key strategic areas, some of which were underlined in the Technology Security Initiative inked by both governments in July 2024. And fundamentally, the benefits of this transformative FTA is the impetus given to relocating Indian MSMEs that may not yet be present in the UK or UK MSMEs that may not yet be located in India and allowing both India and the UK to become more involved in each other critical supply chains.

India has agreed to halve tariffs on whisky and also to lower auto duties to 10 percent under a quota. What would be the impact in terms of market access for UK companies? There are concerns that British goods would flood Indian markets.

I don’t believe duty cuts on whisky and automotives will lead to a flooding of British products in the Indian market. It is Indian consumers who will decide what they want to buy, whether they will buy Scotch whisky against a growing and a very impressive indigenous industry in India or the UK automotives versus the domestic choice offered by one of the world’s leading automative manufacturers.

At the same time, I do also believe that these tariff cuts may increase technology transfer both in the automative and the alcoholic beverages sectors. Take alcohol imports to India, the relevant chapter also includes bulk imports of whisky, which is a fundamental constituent of a growing, domestic alcohol market in India. It also should encourage innovation and technology transfers in packaging and processes, which will benefit Indian producers as much as it will benefit producers out of Scotland.

As such, it is Indian and UK consumers who will benefit from the lowering of tariffs. The reduction in tariffs and encouragement of freer trade has direct and indirect benefits for both our economies. What is being achieved is 1+1=3, not 1+1=2.

While the UK has agreed to eliminate duties accounting for 99 percent of tariff lines, India has agreed to lower duties on 90 percent of tariff lines in a phased manner. Which sectors would benefit the most from the increased market access?

There are areas that are not directly part of the FTA but may benefit due to the increased dialogue between India and the UK such as upstream technology, defence and aerospace, cybersecurity, trade technology, climate change, green financing and artificial intelligence. These are also areas India wants to focus on to achieve its Viksit Bharat ambitions by 2047.

So, I frame the FTA as much more of holistic collaboration rather than a pure exercise in tariff reduction. People focus on tariffs, but this agreement is far broader and more impactful for both the countries.

London, too, plans a CBAM-like structure to reduce carbon footprint. India has been worried about the impact of such a move on its metal exports. Will the FTA be able to grant India some leeway?

The UK has indicated that it will follow the European Union’s legislation on Carbon Boarder Adjustment Mechanism (CBAM). Phase 1 of which is due to be introduced in 2027. Reduction of the global carbon footprint is an ambition we all should support.

In an ideal world, we should have a global standard as to how carbon taxes are applied across sectors. Unfortunately, we do not and that raises concerns about carbon leakage and the impact that this has on domestic industries and areas of strategic domestic interest.

For instance, in 2010, there were 11 oil refineries operating in the UK, now the UK has five. And this is not a UK issue solely, a recent third-party study estimated a similar decline in Europe and elsewhere. Refining capacity coming on stream in many other parts of the world do not suffer similar levels of carbon tax as in the UK or the EU. This means that refined products from these areas can be sold at lower cost into countries suffering higher levels of carbon taxes, undercutting domestic production, putting domestic oil refineries at a considerable financial strain. In the longer run, this undermines economic and energy security a key concern in many countries in the current environment, including India.

I have used refined products as an example but it relates to many other sectors exposed to carbon leakage. Undoubtedly, India and the UK have to work out issues around CBAM and we have time to do so. Of course, there are certain areas within the FTA that have yet to be agreed, for instance, professional and financial services. I believe CBAM is another area where there will be ongoing discussions whether as a part of the FTA or as part of on-going discussions on Ease of Doing Business.

Now that India and the UK have signed one of the first major trade deals after the US’s tariff policies that is seen impacting global trade, do you expect more deals being quickly signed to limit the fallout of new trade policies?

The UK is a steadfast believer in free trade both traditionally and philosophically. I welcome the announcement of a Free Trade Agreement between the UK and the US last week. At the same time, look forward to a speedy free trade agreement between India and the US. Indeed, one can envisage that such a tripolar grouping would catalyse significant commercial advantages.

And now that an agreement has been reached on a trade deal between China and the US, it would appear that there is a positive momentum in trade discussions.

India and the UK’s FTA shows confidence and commitment to engage in a meaningful way between two very significant partners. Latterly, India has become one of the largest FDI investors in the UK and the UK also has large and extensive investments in India. So, the signing of this trade deal does send a strong sign to the likes of the US and other trading nations that the fifth and sixth (largest) economies in the world remain focused on expanding their economic partnership.

What is the timeline in the UK for signing and ratifying a trade deal?

It is quite a complicated process. In the UK, there are various ratification processes and it has to be approved by both houses of Parliament. So how long for the trade deal between India and the UK to be operational? It could take several months but I have no doubt it will be ratified and signed.

India has also been able to secure an exemption on social security payments for Indian workers for three years. This has sparked concerns over a two-tier tax system in the UK. What is your view?

I think the exemption is entirely logical. There have been a lot of politics and optics around this. The fact of the matter is that this is a matter of reciprocity. The UK has agreed to such provisions with a number of countries and there is precedent for the inclusion of such exemptions.

The fact of the matter is that temporary Indian workers in the UK have in the past paid national insurance yet they don’t receive any benefit of that. However, UK employees in India employed on a similar temporary basis do not suffer similar levies.

However, this exemption is not an open door for immigration from India on a permanent basis. This exemption applies to temporary workers only and extends to a maximum of three years

Critically, the UK government has not increased the scope or number of temporary visas for Indians. As such, the UK Home Office will continue to issue temporary visas as they see appropriate. That having been said, it addresses an abnormality in the area of mobility and eases the costs and burdens on both temporary workers and their employers.