How Free Trade Agreement with India will help UK to stem its shrinking economy

The UK administration led by Rishi Sunak has had a rough ride, with the latest official figures released this week indicating a decreasing economy and a two-year-long recession.

234
Free Trade Agreement
Free Trade Agreement

Free Trade Agreement: The UK administration led by Rishi Sunak has had a rough ride, with the latest official figures released this week indicating a decreasing economy and a two-year-long recession.

The former finance minister of Britain and India, who assumed leadership of 10 Downing Street last month with the pledge to correct the fiscal mistakes of her predecessor Liz Truss’ disastrous mini-budget, has vowed to control the rising inflation as a top priority and forewarned of difficult tax and spending decisions to come.

Free Trade Agreement

Even as they hold out the possibility of a free trade agreement (FTA) with India as a potential source of much-needed economic growth, economists concur on the enormous scale of the problem.

Dr. Anna Valero, Senior Policy Fellow at the London School of Economics (LSE) Centre for Economic Performance, says that both recent and enduring issues are to blame for the UK’s economic problem.

She claims that the UK’s unusually weak productivity growth following the financial crisis has been a drag on real wages and is a contributing factor to high inflation, high interest rates, and restrictive fiscal policy.

Inequalities are likewise significant and ongoing in the UK. The UK is now a “Stagnation Nation,” she says, and urgently needs a new economic plan to put it on a stronger, more equitable, and more sustainable growth path. When asked how an India-UK free trade agreement may affect this situation, the expert commended Sunak’s commitment to a deal.

Such a partnership might create economic chances for the UK, especially if there is a chance to export services, which are the country’s main competitive advantage, to a market that is anticipated to experience rapid expansion.

The Russia-Ukraine conflict is thought to be the primary cause of the energy issue that is driving up household costs in Britain at the moment. The main causes of the current disaster stand out as a weak post-COVID recovery, the lingering effects of Brexit uncertainty after the UK exited the European Union (EU) in 2016, and years of underinvestment as a result of austerity measures taken in the wake of the 2008 financial meltdown.

According to Dr. George Dibb, director of the Center for Economic Justice at the London-based Institute for Public Policy Research, the UK economy had been experiencing low growth, too little investment, and economic inequality both across and within its regions even before the present crisis (IPPR).

This was made worse by the recent decade of “austerity,” which involved budget cuts that hurt average households and deteriorated the health and education systems that serve as the foundation of any thriving economy.

“Things were made worse again by the huge impact on energy prices of Russia’s invasion of Ukraine, with the resulting cost of living crisis that has provoked; and the final straw that broke the camel’s back was the Truss government’s recent mini-budget and its proposed unfunded tax cuts, which undermined market confidence in both the UK government and the economy”, he reflects.

According to him, the ongoing succession of new prime ministers and governments with frequently shifting agendas has made business decision-making even more difficult. As the Sunak government gets ready to present the crucial Autumn Budget Statement the following week, stability and a strategy that will advance the growth agenda are urgently needed.

“There are reports that the government is planning to scrap the dividend tax allowance, but that would be only a small step in the right direction, and we think it should go further and start taxing dividends at the same rate as income tax. Not only would this raise billions more to help support households and businesses, it would also end the injustice that working people pay a higher tax on their income than shareholders, adds Dr Dibb.