Keir Starmer was last night accused of undercutting British workers to seal a £5 billion trade deal with India.

Under the agreement, tens of thousands of temporary Indian workers will be exempt from paying National Insurance in Britain, making them cheaper to hire.

New Delhi heralded the deal as an ‘unprecedented’ win, but the UK Prime Minister was accused of introducing ‘two-tier taxes’ after National Insurance contributions for British firms were increased in last year’s Budget.

Many companies warned they will be forced to slash jobs or even shut down. Separately, the agreement said there would be more visas for yoga teachers as they were now classed as ‘skilled workers’, alongside chefs and musicians, capped at 1,800 a year.

The row comes just days after Labour was battered in the local elections by voters who turned to Reform UK over concerns about immigration.

Conservative Party leader Kemi Badenoch refused to agree to the deal when she was trade secretary over the NI issue and concerns about visas and fairness.

‘This is two-tier taxes from two-tier Keir,’ she said.

‘When Labour negotiates, Britain loses.’

The agreement will see workers who are seconded to the UK offices of Indian-based employers, or a multi-national with offices in the country, exempt from NI for the first three years – allowing them to avoid paying both at home, as per Indian law, and in the UK. The firm will also not have to pay the contributions. The deal will be reciprocal for British workers transferred to workplaces in India.

Officials have not provided an assessment of the cost or impact on UK businesses.

The change is understood to have been a key demand by New Delhi’s negotiators who said the agreement, which has been three years in the making, will result in ‘significant financial gains’ for Indian companies.

The deal will also see the UK lower tariffs on clothes, shoes and food such as frozen prawns from the subcontinent, in exchange for reciprocal cuts for products including whisky and cars.

But the tax break – omitted from the UK press release on the pact – immediately provoked anger.

Grim figures yesterday revealed the UK’s services sector had shrunk for the first time in 18 months, blamed on the NI increase – which came into force in April – and Donald Trump’s trade war.

Tory business spokesman Harriett Baldwin told the Commons: ‘This Government is literally putting up taxes for British workers, but cutting them for Indian workers. This deal looks like it’s subsidising Indian labour while undercutting British workers.’

And the party’s justice spokesman, Robert Jenrick, wrote on X: ‘British workers come last in Starmer’s Britain.’

Reform leader Nigel Farage, fresh from delivering Labour a bloody nose at last week’s local elections, said: ‘In Starmer’s Britain, people who have grown up here, worked hard, paid their taxes and propped up the economy are effectively being asked to pay to put themselves out of work. It is nothing short of a betrayal of working people in this country.’

Defending the deal, Business Secretary Jonathan Reynolds pointed to equivalent agreements with the EU, the US and South Korea under the Double Contribution Convention.

‘It means that when our people are moved by a company to India they will be paying into the UK system and not the Indian system, and when Indian people are temporarily in the UK they’ll be paying into their system and not to ours,’ he said. ‘But it’s very specific as to who this applies to.’

But Tory MP Nick Timothy said ministers were ‘conning’ the public, adding: ‘These changes will create a massive incentive for UK firms to work with Indian service providers, undercutting domestic workers, companies and contractors.’

Indian nationals accounted for the highest proportion of UK work visas issued last year.

No 10 said Sir Keir will visit India ‘at the earliest opportunity’ following a phone call between the PM and his counterpart Narendra Modi.

Lib Dem Treasury spokesman Daisy Cooper said: ‘The Government’s failure to even publish an impact assessment of these changes gives the impression of something that is completely half-baked.’