Katie Lam, Conservative MP of Weald of Kent, has spoken out strongly against the terms of the India-UK Free Trade Agreement, which affect the migration of workers from India to the UK. “If India wants to trade, then we should trade. Migration shouldn’t even come into the equation,” said Lam.
The reason for Lam’s displeasure is that the Free Trade Agreement (FTA) and a Double Contribution Convention (DCC) with the UK are expected to end up helping Indian companies save a huge amount, as well as helping Indian employees see a lower deduction from their savings towards the compulsory social security scheme of the UK.
“Under the terms of our Free Trade Agreement with India, Indian companies will be able to transfer their workers to this country more easily. Once they’re here, those workers will be able to avoid National Insurance payments for up to three years. The same is true for employers. Instead, both employee and employer will pay into the Indian social security system instead,” said Lam.
The UK mandates all employees and self-employed individuals to contribute a fixed amount of social security towards National Insurance. So, Indian employees in the UK are forced to contribute to both the Indian and UK social security schemes. For the Indian employees, it was a kind of ‘double contribution’.
Now, for the first time, India has secured an exemption for Indian workers who are temporarily in the UK and their employers from paying social security contributions in the UK for a period of three years under the Double Contribution Convention.
This exemption is expected to provide significant financial gains for the Indian service providers and enhance their competitiveness in the UK market, which would create new job opportunities as well as benefit a large number of Indians working in the UK.
India, the second largest investor in the UK, employs thousands of Indian workers, with the largest Indian workforce in the technology services sector. For Indian employees going to the UK on a temporary job assignment, there was a double contribution.
Going forward, temporary Indian workers in the UK are exempt from paying social security as they are unlikely to work long enough to qualify for a state pension. Indian employees in the UK can claim exemption from social security contributions by obtaining a Certificate of Coverage from the Indian Provident Fund office.
Lam acknowledges this and says this National Insurance exemption will make it much cheaper to hire Indian workers, in fields like IT and engineering, than to hire domestic talent of UK. Lam labels the agreement as ‘absurd’, saying, “Under this Government’s deal, it would be at least 10 percent cheaper to hire an Indian worker over a British one for this job. This is absurd.”
Sharing an example, Lam said, let’s imagine a British IT firm, set to hire a computer programmer for £60,000 a year. To hire them, an employer needs to spend £60,000 a year on their salary, plus £8,250 on Employer National Insurance. That’s a total of £68,250.
An Indian competitor with an office in London, meanwhile, can save money by transferring Indian workers to the UK, even if they pay the same headline salary.
They’d still spend £60,000 on the salary, but instead of paying National Insurance, they pay into the Indian Employee Provident Fund instead. Mandatory contributions to the fund are capped at 15,000 rupees a month, or about £120.
That means that, across a year, an employer only pays £1,470 into the social security system – for a total of £61,470. So under this Government’s deal, it would be at least 10 percent cheaper to hire an Indian worker over a British one for this job. This is absurd. Over three years, it would be more than £20,000 cheaper for an Indian firm to bring over an Indian worker to London than to hire locally.
LAM continues to slam the agreement by citing how Indian consultancies lease their workers to American companies, who are then able to pay an Indian worker far less than they’d 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.