Two cheers for Labour’s trade deals
Neither agreement is perfect, but the government should be credited nonetheless – and constantly reminded that it was all possible thanks to Brexit.
Last week, the UK government signed two important trade deals, first with India and then with the US. This is cause for celebration for the government – but a certain amount of awkwardness, too. After all, the prime minister, Keir Starmer, was parliament’s foremost blocker of Brexit. Yet here he is waving the flag for two deals that would not be possible without it.
Before the EU referendum, US President Obama declared that Brexit would leave the UK at the back of the queue for a trade deal with the US, yet here we are as the first country to negotiate a better deal on Trump’s tariffs. An EU trade deal with India may, optimistically, happen by the end of this year. (No doubt the UK deal will, ahem, generate some urgency in Brussels.) Oh, the hilarity of watching the chief secretary to the Treasury, Darren Jones, clearly too embarrassed to admit that last week’s announcements were another win for leaving the EU.
The India deal has been under negotiation since 2022 and getting it ‘over the line’ is good news: India is now the world’s most populous country and economic growth there is rattling along at levels Western countries could only fantasise about. That means that India has the potential to be a major market for UK goods and services. The UK government estimates that this trade deal alone could add 0.1% to UK GDP by 2040. At a time of microscopic economic growth in the UK – GDP growth for the entire economy for the final quarter of 2024 was also 0.1% – every little helps
The deal is by no means completely free trade. Some tariffs will be eliminated, while others are cut. For example, a useful briefing on the deal by the House of Commons Library notes: ‘UK whisky exports will see tariffs cut from 150% to 75% immediately and to 40% in the tenth year of the agreement. The Scotch Whisky Association described the deal as “transformational” and said it could increase exports by £1 billion over the next five years and create 1,200 jobs in the UK.’ Tariffs of high-end British cars will fall, but quotas are still to be finalised. (There’s still a fair bit of work to be done on the fine details more broadly.)
The briefing notes that 64% of tariff lines will be eligible for tariff-free export to India, rising to 85% over the next 10 years, while 66% of existing imports from India will become tariff-free. On the other hand, in some important food sectors like sugar, milled rice, pork, chicken and egg, UK tariffs will remain. The India deal is not as complete as it might be, but to agree a wide-ranging deal with a huge but notoriously protectionist country is still a big win that increases export opportunities and could cut prices in many areas for British consumers.
The thing that provoked considerable controversy was a Double Contribution Convention that means that Indian companies that second their workers to the UK will not have to pay social security contributions. That applies to workers’ contributions, too, and is reciprocal – UK workers in India won’t have to pay Indian social-security contributions either. On the surface, this seems fair, since those workers would still be subject to such taxes ‘back home’. For example, an Indian worker coming to the UK would currently pay national insurance in both countries but get no benefit in terms of accruing UK pension entitlement.
Moreover, it is a condition for anyone getting a visa to the UK (including spouses and adult children) that they pay over £1000 per year to cover any use they make of the NHS. So, despite first appearances, this doesn’t seem to open the door for massive recruitment of cheap staff from overseas. The national insurance holiday applies to seconded staff from Indian companies – it doesn’t apply to any Indians recruited by British companies. And there is still a cap on the number of business visas that can be issued.
Nonetheless, nervousness about this kind of thing is entirely understandable in the context of continuing very high levels of net migration to the UK. This morning’s announcement of Labour’s immigration white paper made clear that immigration is going to remain at historically high levels, even if greater restrictions – including reducing how long students can stay after graduation, higher English language requirements and scrapping some visa schemes – mean that levels fall a bit. Given this context, calling for a proper impact assessment of the India trade deal on future immigration seems entirely reasonable.
The deal with the US government is nothing like as promising as the India deal. The deal prompted a lukewarm reaction in many quarters. Perhaps that was due to misplaced hopes of reversing President Trump’s swingeing tariffs on UK exports altogether. Yet there is still much to be welcomed. Comprehensive trade deals usually take years to negotiate, so expecting huge changes quickly was very optimistic. Yet the deal still gets rid of many of the worst tariff impacts, such as on steel, aluminium and high-end British-built cars. If the tariffs announced earlier this year had been maintained in full, the result would have been an existential crisis for some industries.
Trade expert Catherine McBride has provided a very useful riposte to the negative reaction to the deal on her Substack (read it here). For example, there have been howls in some quarters about allowing 13,000 tonnes of US beef into the UK. But as McBride points out, we already import more than 300,000 tonnes of beef, almost all from tariff-free Ireland. Moreover, the quota is reciprocal, opening up the US market to 13,000 tonnes of British beef. This is not a huge blow to British farming, as some are claiming, but it might be a small piece of good news for British consumers.
The very fact that such a deal could be done quickly is a valuable consequence of Brexit. Any such deal with the EU will likely take considerably longer given the protectionist policies of the bloc.
Two other things are worth noting. First, the Labour government has been pretty bad at communicating the benefits of these deals. It clearly didn’t coordinate its press briefings with the Indian government, which declared the Double Contribution Convention to be ‘unprecedented’ when it isn’t, really. Then there was the cock-up of sending reporters to Jaguar Land Rover’s plant in Coventry for Keir Starmer’s speech for the US deal, when it was actually happening at a different plant 34 miles away in Solihull.
The other thing worth noting is the reaction of the Conservatives, which seems rather churlish. After all, Conservative leader Kemi Badenoch was the trade secretary in the previous government and would have done much of the negotiation for the India deal. Rather than welcoming the agreement, the tone was unduly negative. Writing in The Times, she described the deal as a ‘capitulation’. It’s true that the deal leaves some important gaps – for example, on protecting investments and liberalising access for legal services – but the deal is still very beneficial.
On the US deal, she wrote: ‘Many do not understand why the US deal is so disappointing. What we witnessed was the spectacle of Starmer staring at a phone as President Trump lauded a deal that keeps 10 per cent tariffs on UK goods, while we slash them on American goods.’ The deal could, perhaps, have been more comprehensive, but both sides clearly see it as a starting point to something a bit more significant. ‘Capitulation’ seems melodramatic on both counts when Conservative Brexiters like Daniel Hannan have been proclaiming that they are significant wins.
In the Telegraph, Hannan wrote: ‘I understand that it is the duty of an Opposition to oppose. But both these deals are wins for Britain, made possible by leaving the EU. Indeed, both were actively pursued by the Conservatives. My party, and Brexiteers more widely, should be taking credit for having done what all the clever Europhiles have spent six years telling us was impossible.’
There are many things wrong with the UK economy and trade deals won’t move the dial on those problems much. But on balance, last week’s deals should be celebrated not bemoaned.
The Academy of Ideas will be discussing the purpose and impact of tariffs at a special online event on Wednesday 28 May for our paid Substack subscribers and Academy of Ideas associates. It will be introduced by economist and author Phil Mullan, and will be a great opportunity to take stock and raise questions and comments. If you would like to take part and are not already a paid subscriber or an AoI associate, sign up as a paid subscriber to this Substack using the button below or become an Academy of Ideas associate here.