167. Should We Care That Indian Workers Won’t Pay National Insurance?

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1:38Hello and welcome to The Rest is Money with me, Steph McGovern. And with me, Robert Paxton. So, the trade deals. Actually, before we get on the trade deals, are you going to share with our audience the rather insightful anecdote that you share with an audience of business people about your role as my producer. You mean, do you mean the explicit one? Like the one where I... It was one of the funniest things I've ever sat through. Right, so Robert and I were talking to, as he's just said, this, you know, a group of business people. It was mainly men, wasn't it? And I'd basically... I don't know if I can even tell this.

2:21You don't even know whether you can tell us about it. I'm going to quickly tell it. So when I was your producer, I was talking about how sometimes the editors of like the 10 o 'clock news would say to me, Robert, you know, he needs to finish. He's only got two minutes. And I'm like, what do you want me to do? Do you want me to run on set and pull him off? And obviously then I realised what that sounded like. So then I said, oh, not like that. Anyway, the entire room, I went bright red, the entire room burst out laughing. It was absolutely wonderful. I know. I was like, I'm going red now talking about it.

3:00So as you can see, we're a very, very upmarket economics business. They loved that. They loved it. Anyway, should we talk about trade deals? I think we should go downmarket now and talk about trade deals. Yeah, yeah. So obviously we had the announcement this week that the UK has done a trade deal with India. We're going to have a chat about what it means. And Robert's really frustrated around not getting some of the numbers on what it all means. But let me tell you quickly what it is. So India essentially going to cut the tariffs on things like whiskey, gin and cars. I mean, these numbers are quite staggering as well.

3:39We've talked a lot about the Chinese tariffs with the US being... Well, the new ones, the punitive ones that they've recently imposed. But these are tariffs that India has had in place forever. It's a very protectionist economy. It has been one of the great frustrations for British businesses. I mean, I've been talking about this with British businesses for something like 30 years, believe it or don't. They've always been desperate to get into the Indian market. But there is just this wall of tariffs around India. There's been forever in India a sort of India first policy, not unlike what Trump is now trying to impose.

4:16But actually, historically, it's not been great for India. I mean, more recently, of course, this is now a very growing economy because it is gradually being deregulated. But, you know, historically, it was much more of a sort of old fashioned command economy, almost sort of Soviet style in some ways, the level of protectionism and the level of government control and regulation. And this is a mega deal. This is the most important deal that the UK has done, the free trade agreement, since Brexit. And as I understand it, it is the most ambitious trade deal that the Indians have done. And I think you were about to tell us, because it is, they are jaw-dropping how big the tariffs on, for example, whiskey and gin are at the moment.

5:04150 % currently, the tariffs on whiskey and gin. So they're going to bring that down to 75 % and then eventually 40 % after 10 years. That's still a massive tariff. Yeah, 40%. But 40 % on a premium product is sort of affordable, particularly for a middle class in India that is now, I mean, tens of millions of middle class people in India now in this enormous population. So this is a big win for the Scotch whiskey industry, partly because, again, you learn when you do immerse yourself in these trade deals, you learn some interesting facts. I didn't realize that India is the biggest whiskey market in the world.

5:44Most of that whiskey is produced domestically. It's cheap Indian whiskey. I'm told a lot of it is made from molasses, but it's a massive market. Right. And therefore, there is a huge, there's genuinely a big, you know, there's a big potential here for the whiskey industry and also for motorcars. So the tariffs on motorcars are what I think. 100 % at the minute, but they're coming down to 10%, but with a quarter. There is a quota. But if you think about, you know, your Jaguar Land Rover, which is owned, of course, by an Indian business, Tata. and it's enormously helpful to motor manufacturers in the UK that these tariffs are going to come down on exports to India, as you say, subject to quotas.

6:32I think the quota for these higher value electric vehicles going into India will be, I think it's 20 ,000 a year. I think that's right. But of course, this is enormously important at a time when we've got these 25 % tariffs on British experts of motor cars to America, which Trump has recently imposed. There is a sort of extraordinary paradox here that Jaguar Land Rover, such an important motor manufacturer in the UK, is actually Indian owned. And the fact that therefore cars made by an Indian owned company based in the Midlands in the UK is currently subject to these enormous tariffs is, I mean, I don't know.

7:15Is the word paradox right? I don't know. And what it means is, I mean, God knows how much weight you put on these government forecasts, but I'm going to share what the government projections are. So they published a document that is called a technical note about the preliminary estimates for the economic impact of the UK-India Free Trade Agreement, right? So that's what it says it is. And then all over it, there are these big warnings that say, this is not a forecast. I mean, so it's not a forecast. OK, it's a sort of I mean, goodness only knows what the hell they think it is. But it's a sort of indication of what they think the benefits will be.

7:56But they do not want to be held to account if these numbers turn out to be wrong. But here are the government's numbers. They say that between now and 2040, this significant reduction in tariffs on both sides will increase trade between the two countries by£25.5 billion. But the good news is that the increase in trade for the UK will be significantly bigger, they believe, than the increase in imports from India. So they are saying that British trade in goods with India will go up by 59.4 % to£15.7 billion, whereas UK imports from India, and they will be largely things like increased imports of clothes, that kind of thing where the tariffs are falling.

8:56Apparently we get a lot of frozen prawns from India. Yeah, more prawns. I love a prawn. That sounds very Trumpian, doesn't it? I love a prawn. But anyway. I love a prawn. I don't know why Trump's voice came into my head when I said that. Goodness only knows. But anyway, their exports to the UK are expected by the British government to only go up by 25 % over the next 15 years to just under£10 billion. Actually, I should also point out that tariffs are coming down very significantly. I think there are currently something like 10 % tariffs on imports of Indian cars. And they will come down and subject to a quota of 80 ,000.

9:36But these are low cost Indian vehicles. They're not competing with the likes of Jaguar Land Rover, for example. So it looks like a bigger win for the UK. Again, I think this is an important deal, partly because encouraging free trade is something that we have said is so important at a time when Trump is rolling back free trade, when he's imposing these tariffs all over the world. And I've made the case on this podcast multiple times that we should, as nations outside of the US, try and offset the negative impact, the lower growth that comes from his tariffs by agreeing trade deals just like this one, right, where we bring down barriers to trade.

10:22But again, I should put this into context. I bigged it up by saying enormously ambitious. But the forecast, not a forecast. Sorry, I've got to say it again. The projected increase in GDP, our national income that government says will flow from this is, again, it sounds like a big number. It isn't. 4.8 billion pounds by 2040. and, you know, 4.8 billion to you and me, you know, I'd love 4.8 billion pounds. It is 0.1 % of our GDP. By 2040 as well, so it's not even anytime soon. It's better than a kick in the face, but, you know, and it will create jobs. We should be under, you know, thousands of jobs in Scotch whisky, in motor cars, you know, will almost certainly be created.

11:09There are also hopes that all sorts of service industries will be helped by this arrangement. But 0.1 % on GDP, that is, I think, from memory, half of a 1 % cut in national insurance. So, you know, as I say, better than a kick in the teeth. But just to be clear, that's GDP. That's not even tax revenues. And interesting, you mentioned national insurance there, because that's what seems to have got all the headlines from this trade deal, is that in return, you know, for these tariff changes, one of the things that's been agreed is it's going to be cheaper for Indian companies with UK operations to employ Indian staff because they won't pay national insurance on Indian staff relocating to the UK for up to three years.

11:57And similarly, that's a reciprocal thing for people from the UK going to India to work for companies. And they'll obviously still have salary thresholds for visas and the NHS surcharge and things. But this is what's got a lot of the headlines. And in terms of, I was looking at the stats on how many people actually come over from India to work in the UK. And the latest stats on this were that there were approximately 127 ,000 people from India who moved to the UK for work. So it's the largest group of work-related immigrants that year were from India. And obviously this is being used now to accuse reform have totally jumped on this, as have the Tories, to suggest that it's going to be cheaper for British companies to employ Indian workers than it is UK workers in these companies.

12:49But it's not as binary as that, is it, Robert? It's way more complicated. It is quite complicated. I think it's worth pointing out that this is an agreement that is separate from the free trade agreement. One of the things that alerted reform on the Tories, the fact that, you know, there was a political opportunity here for them, was that it was Narendra Modi in his tweet that said that India had agreed a free trade agreement and what's called a double contribution convention. And it is true, one of the things that was slightly weird was that when the government was briefing this earlier on, they didn't mention the double contribution convention.

13:31Now, I think if I just explain what that is, I think most people will say this sounds like common sense, right? Which is, it's an agreement, which means that if you are an Indian coming to work in the UK. For an Indian company. For an Indian company, if you're just being transferred, it's for three years. You get a very specific visa related to your skills. Many of these companies, for example, are in IT or in consultancies of various sorts. We've got some very highly skilled Indians who come to the UK to make a contribution here. At the moment, that Indian working in the UK will pay national insurance in the UK, quite a chunky sum of money.

14:17And they will also pay into the welfare system in India. They're paying twice. And if they pay international insurance in the UK, they get no benefits. Right. And the same is actually true if you're an English or British UK person working in India. Right. You have to pay national insurance here and you have to pay into their welfare system. And as I understand it, the Indian system is you actually pay into a you have to pay into a pension pot there. But you lose the money as soon as you come back to the UK. So, again, you are you are paying twice and at least one chunk of the money that you are paying gets you no benefits whatsoever.

14:56So as part of this deal, it doesn't surprise me that the Indian government wanted an agreement that basically meant whether you're British in India or Indian in the UK, you would pay only once. And as I understand it, we do have arrangements like this with other areas like the EU and like the US. US. Now, all of that said, there obviously was a sort of crude political opportunity for reform and the Tories, because they have highlighted that this means that if you are an Indian working in the UK, you will not pay national insurance anymore. Whereas if you're just an ordinary person like you and me, British person working here, we do have to pay national insurance.

15:48And there is also a saving for your employer. They won't have to pay the employer's contributions, whereas, as we all know, hugely controversial. British employers have gone up very significantly. And so Kimmy Baden-Ark has come up with this, you know, I can't bear all this sort of two-tier care stuff. But anyway, nonetheless, the latest two-tier care that she's come up with is two-tier tax care. And the charge that she's making against the government is that he's discriminating in favour of foreign nationals when it comes to national insurance. and she wants to turn this into a sort of resonant issue where basically British people feel hard done by because he's helping foreigners rather than British people.

16:41Can I ask a question, though? If you're an Indian company with UK operations and you have a vacancy for a job, it would be cheaper to bring someone over from India to fill that role than employ someone who already lives in the UK because of that contribute, them not having to pay national insurance on there, them working there, wouldn't it? Yeah, obviously it's going to be cheaper. So that's the beef, isn't it? But that's not the whole story, right? And there are two aspects of this that are important. One is the current visa rules, immigration rules, remain in place, right? It's not that easy for any company to simply bring somebody from abroad.

17:28There are all sorts of tests that any company has to pass in order to bring somebody over. Now, you can argue that this new points-based system that the last government introduced has been absolutely hopeless. Because as we all know, immigration has soared to hundreds of thousands under these new immigration rules. You know, we had one year recently where there was a million people coming to live and work in the UK. and the whole point of Brexit was supposed to be that these numbers were supposed to come down and they haven't. But those restrictions are still in place and I think it is highly implausible that we will see a massive surge in numbers coming from India as a result of these changes.

18:20You said there's more than 100 ,000 Indian nationals. Yeah, 127 ,000. Working in the UK. As I understand it, only a very small proportion of those would be able to benefit from this reduction in national insurance. So as I understand it, we are talking about maybe 20 ,000 per annum, as it were, benefiting from these sorts of arrangements. And when I did the calculations on this, the cost that I came up with to the Treasury of this lost national insurance was somewhere between 100 million and 200 million. Now, I have to say, these are my calculations, right? I put it to the government and I said to them, this is still real money.

19:12But, you know, frankly, in the context of the government spending, it's a rounding error, 100 million to 200 million. And it's definitely worth paying for a trade deal that could create, should create many thousands of jobs in the UK. Right. If you're paying, let's say, 100 million to 200 million and you're creating thousands of new jobs, that is a price worth paying. The thing that drove me up the wall was these numbers obviously exist in government. And, you know, talk to various officials about this. And they will not supply their estimates of what this will cost. They won't talk me down from it being 100 million to 200 million.

19:54So I suspect we will see the numbers in that ballpark. But it does seem to me that they are, this is a government that is so brilliant at snatching defeat from the jaws of victory. This is a good deal for the UK. And yet all attention is now on whether or not the government is giving unfair help to Indian nationals when they come here. And that's mad, right? They are not making the proper case for this deal, which they could do if they simply said, yeah, it's going to cost us, I don't know, 200 million in lower national insurance. But just think about all the new jobs that are going to be created, all the tax that those people are going to eventually be paying.

20:33All the profits that will be generated from Scotch whisky and motor manufacturers that will also then generate taxes that go into the UK. They can't make any of this, these arguments, because they won't give us the numbers. But why? I mean, I think there are two explanations. One is, I have to say, you know, just in general, there has been not enough media. When it just comes to media, you know, with this government, they are literally hopeless at getting information out fast. They are hopeless at it. Right. You know, whether it's getting all the bad news out so that it doesn't, you know, if you remember, you know, it took weeks for them to get all that information out about, you know, Keir Starber's free suits and free spectacles and the Chancellor's free suits and all of that.

21:21That dragged on for weeks. They should have just got all that information out in 24 hours. It would have been a bad story for them, but it would have been over. And this is another example of just not thinking through what you have to put out in order to get your message across. So that's one thing. And then secondly, and this is probably not so much the government's fault, but it is the sort of caution of the civil service. Right. There's a lot of data about Indian nationals coming to the UK. There has been stuff published about the run up to this agreement on national insurance. I was able to look at that information and come up with my own estimates of, you know, how many people would be involved and what the numbers might be in terms of cost.

22:08If I'm able to do that, you know, the thousands and thousands of civil servants employed by the government are capable of doing that. But for reasons best known to Whitehall, they will not put numbers out in a sort of rough and ready way, which is mad. They ought to simply say these, you know, these are numbers that, you know, are based on the available data. They are subject to change, but it's our best initial guess. Why they won't put those numbers out and just take the risk of then having to correct it later is literally beyond me. Well, hold that thought, Robert, because there's still loads more we want to talk about on this trade deal.

22:43More on that after this break.

22:48can i ask one other thing just on because you know i i see this from the people who i know who are you know very in the reform camp at the moment the other thing that they will take from this that i think it's worth us debunking is they will assume that as you've just eloquently explained if indian nationals come and work for a company here they don't pay into our welfare system because they're still paying into the one at home. But do they benefit from our welfare system? Because is there a sense that if, for example, they need medical care, they might have to use the NHS? And there is still things in place like the NHS surcharge.

23:29So they're not getting the NHS for free necessarily. No, no. I mean, one of the things the government made absolutely clear yesterday, one of the more sensible things they said, is that these people will still have to pay the NHS surcharge. And I think that's not being told because that's the type of thing. Well, they're putting it out, but they're not putting it out loudly enough. Yeah, because, you know, people who I know who are like, ah, they're going to come here and they're going to take our jobs and they're going to get all of our brilliant healthcare system and everything for free. And that is not being explained to people properly and that is what's going to win reform the next election.

24:00Yeah, I mean, you're right that they're just not good enough at explaining, you know, precisely that, as it were. But just to repeat, you know, these people will have to pay the NHS surcharge. There is just another point. Most people think, because there is a connection between the national insurance you pay and the state pension you get at the end of it, you have to pay your contributions, right? These people will never get a British pension, any of them, right? It is basically money down the drain if you're an Indian national when you pay this. You know, it was just a very high price for having to work here.

24:34But there's another side of this which sort of just shows you the Conservative Party has changed so much over the last few years, right? There was a time, and it really wasn't very long ago, literally just, you know, you might even argue a year or two ago, right? When the position of the Tory party on something like this would have been yippee, fantastic free trade deal. The Tory party believes in free trade. This is patently a good deal. So the Tory spokesperson on this, Harriet Baldwin, was in the House of Commons representing the Tory party. And it was sort of absurd because she begins by saying this is a good deal for Britain.

25:18And she says that in about 10 seconds. And then the whole of the rest of her speech is about this national insurance and how unfair it is or how unfair it looks. And that was just one example. Kimmy Badenoch tweeted about how this looked like an unfair tax advantage for Indian nationals. This is sort of extraordinary in a way, because historically, the Tories' main claim to government was that they had a responsible approach to managing the British economy. And their whole selling point was we are more responsible than labor. One manifestation of that is that they were in favor of free trade and they would look at the trade benefits against the costs.

26:11Now, if I am right, the national insurance cost is, let's just say, under£200 million a year, you know, set against thousands of jobs being created, an increase in GDP of something like£5 billion over 15 years,£25.5 billion of additional exports. If these are ballpark right numbers, then 200 million in low receipts of national insurance is definitely a price worth paying. And any party that wanted to be taken seriously as a party of government would basically say, this is a good deal. No caveats, no ifs or buts. Instead of which, they basically found it impossible really to say anything very positive about the deal.

26:59and all they've focused on is the short-term cheap attack and it's part of their apparent current project to become reform light. Reform may or may not end up before the election with a credible economic policy, right? But at the moment, they don't need to, right? Because their whole shtick is, you know, we're anti-globalisation, we're pro the British worker. When, you know, in the last election, as I've said, We had a row with Zia Yusuf when he came on, their chairman. It was a ludicrous manifesto. It was completely economically incoherent. Nigel Farage, when I spoke to him about it, said basically tough titty.

27:45We didn't think we were going to win the election. So why should we have an economically credible manifesto? What we wanted to do was get out our ideas. And for them, that worked. Now, there's an interesting question. whether their manifesto for the next election, if they want to win, has to be economically credible, right? But they've got no history of being economically credible. I suspect they will have to become more credible economically if they're going to stand a chance of winning the election. But the Tories have only one, what you might call, unique... They have a unique selling point, right, historically, which is that they are supposed to be the...

28:23When it comes to managing the economy and the public finances, They're supposed to be the responsible party. Now, you could argue that Liz Truss totally blew that up. Right. I have argued that, you know, but Jeremy Hunt then did some quite painful things for the Tory party, reversing all of that when he became chancellor, because he recognised and so did Rishi Sunak, that unless they took some steps to restore their economic credibility, they stood no chance. Now, as it happens, the electorate took the view that they were no longer economically credible and they were chucked out. I think there's a very strong argument that unless Kemi Badenok comes up with a credible plan for economic growth and keeping the public finances sustainable, there's absolutely no chance of a Tory revival.