New agreements with India and US offer hope amid economic uncertainty – exploring the potential gains and challenges ahead, writes David Smith
Suddenly, you can’t get away from trade deals. Barely was the ink dry on the conclusion of the long-waited UK-India trade deal, and then Donald Trump announced in the Oval Office a much-predicted agreement between America and Britain to limit the damage from his earlier tariff announcements. As they say of London buses, you wait a long time for one and then two come along at once.
The two deals are different. The UK-India trade deal, many years in the making, has in the past been held up because of demand from India for more UK visas for its citizens, difficult for British government under pressure over immigration.
The circle has been squared, not by additional visas, but by the so-called double contribution convention, under which Indians seconded to the UK by their Indian parent companies will escape employee and employer national Insurance (NI). This, a common feature of deals between the UK and other countries is intended, as its name suggests, to avoid employers and individuals paying twice – social security contributions will continue to be made at home.
It is reciprocal, so UK employees seconded to India will enjoy the same benefit. That has not made it any less controversial, with this aspect of the deal criticised by both Reform UK and the Conservative Party.
That will die down, and in the meantime, as the terms of the deal are finalised, the prospect is of gains in future years. Those gains will accrue to the 9,000 VAT-registered UK firms exporting to India, and the 13,000 or so importing from there. Those numbers can be expected to grow.
More to the point, at a time when the UK is desperate to attract inward investment, and London needs all the millionaires and billionaires it can get, the deal with help cement the capital’s role as the place where entrepreneurs and business-owners from the sub-continent come to do business.
There will be more opportunities for trade between the two countries. India, despite the historic ties, is only the UK’s 12th most important export market and the UK share of Indian imports is only a shade over 2%. As well as opportunities for the Scotch whisky industry and others, the professional and business services in which London excels will benefit.
The UK-US deal, similarly, will bring gains, including to the London economy. When Donald Trump imposed tariffs, on “Liberation Day” April 2, his move was criticised by London’s business representatives.
“The UK and US have long enjoyed a strong bilateral trading relationship, and it is vital that we only build on its success,” said Karim Fatehi, chief executive of the London Chamber of Commerce and Industry, immediately after the April 2 announcement.
‘President Trump’s decision to impose a 10% tariff on all UK exports to the US, alongside a 25% tariff on UK car imports, is deeply concerning for the business community, in London, across the UK and more widely in Europe. These measures risk undermining the competitiveness of London businesses in the US market, potentially leading to reduced exports and further economic strain. The UK government must prioritise securing favourable trade deals to shield businesses from these damaging effects.”
Now that the government has indeed secured a trade deal with America – Trump’s first since he imposed the tariffs – his wish has been granted.
The deal with the UK announced by Trump in the Oval Office on May 8 – VE Day – did not return things to the pre-April 2 position. There will still be a 10% “baseline” tariff on UK exports to America. But it brought down the tariff on cars to 10% – up to a quota of 100,000 UK vehicle exports – above which 25% will apply, as well as other changes.
Miles Celic, chief executive of the CityUK, which represents financial and professional services, also welcomed the deal. “Given the significance of the US as the UK’s largest single country trading partner – a relationship in which financial and related professional services make a very significant contribution – today’s trade deal is a positive starting point,” he said.
“We look forward to learning more about its scope and detail and welcome the promise of a digital trade deal. We hope that today’s agreement will pave the way for more future mutually beneficial trade opportunities between our financial and related professional services industries, in particular on technology and innovation.”
As the prime minister put it: “I’ve secured a deal with the US that boosts British businesses and saves thousands of British jobs. I promised to protect British car makers and save our steel. This deal delivers on that promise. “
Having trade deals is better than not having them. Their full effects only pan out over a number of years, however. That leaves a tricky short-term to get through. The good news is that interest rates are coming down, with the Bank of England reducing its key interest rate from 4.5% to 4.25, also on VE Day. There are more cuts to come.
But for London and the wider UK economy, challenges remain. A leading economic think tank, the National Institute of Economic and Social Research, has warned that Rachel Reeves may have to raise taxes in her autumn budget. For individuals and businesses in London and elsewhere, that is something to avoid.
