Proposed India-UK FTA: Social security impasse prolongs negotiations

The United Kingdom’s (UK’s) reluctance to include a social security agreement (SSA) in the proposed free-trade agreement (FTA) with India has become yet another sticking point in prolonged negotiations, according to sources familiar with the matter.

Such a clause in bilateral agreements is signed between countries to protect the interests of skilled cross-border workers. This ensures that social security-related contributions for workers are not made in both countries, typically in the form of insurance or pension.

India is pushing for a social security pact in the proposed deal, considering that the UK is its second-largest service export destination after the US. With a large number of information technology professionals working in the UK, the absence of such a clause impacts emplo­yees working temporarily. 

Because they end up making social security contributions in both countries.
 

“India is discussing social security contributions with the UK. It’s a tough call for the UK since it is a red line for them. But we are insisting on having an agreement and there has not been much progress on that,” one of the people told Business Standard.

India has been trying to ink an SSA with the UK for years now, even before both nations kick-started the FTA negotiations in January 2022.

According to the IT industry lobby group Nasscom, the contribution to the SSA is made both by the employee and the employer in the range of 12-14 per cent.

UK’s resistance stems from the fact that it may not have much to gain since the SSA would be reciprocal in nature. Ajay Srivastava, a former trade ministry official and founder of think tank Global Trade Research Initiative, said India must negotiate hard to include an SSA in the ambit of the India-UK FTA.

“India and the UK both have SSAs with various countries, but not with each other. This absence becomes significant for Indian professionals working on short- to medium-term assignments in the UK. Without an SSA, these workers face double taxation — they must contribute to social security systems in both India and the UK,” Srivastava said.

India has operationalised SSAs with as many as 20 countries, including Japan, South Korea, Australia, Brazil, Canada, and several European countries such as Germany, Hungary, Netherlands, Sweden, among others. However, negotiations for a totalisation agreement — similar to an SSA — with the US have not made much headway.

A Nasscom spokesperson said since the UK has a shortage of digital skill sets required by technology companies, Indian tech companies, in addition to skilling and employing locally, rely on the ability to bring in temporary workers for executing specific projects on a short-term basis.

“Social security contributions kick in after the first year (52 weeks) of being in the UK. The contributions made by temporary short-term workers are non-refundable. A reciprocal social security agreement will bring down the cost of operations for companies and make the UK an even more attractive destination for investments. From an employee perspective, there will be an increase in the take-home salary,” Nasscom spokesperson said in response to queries sent by Business Standard.

Apart from the SSA, other contentious issues in the FTA talks include relief measures with respect to the UK’s carbon border levy, rules of origin, and goods and services. Among goods, the UK has been seeking massive market access on whiskey and automobiles, including electric vehicles. These continue to remain thorny issues.

The 14th round of negotiations for the FTA is scheduled for this month. Both sides intend to conclude the negotiations by next month since general elections in both countries are expected over the next three-four months.

LIKELY IMPACT  

 Without social security agreement, temporary skilled workers make social security contributions in both countries

 A reciprocal pact will cut cost of operations for firms; raise employee’s take-home pay

 Nasscom says SSA contribution in the UK is made both by the employee and the employer in the range of 12-14%