Moves to tackle tax avoidance could make contractors unaffordable for the public sector and hold back efforts to improve public-service delivery.
This is according to economist and commentator John Philpott, former chief economic adviser to the Chartered Institute of Personnel and Development (CIPD), in response to the publication of a report earlier today by the Commons Committee of Public Accounts, which criticised the extent to which "off-payroll" contractors are used in the public sector.
The report recommended that the public sector must avoid the practice of using off-payroll arrangements for staff, adding that this "generates suspicions of complicity with tax avoidance".
As part of the Government's efforts to tackle tax avoidance, it has also consulted on the introduction of measures to ensure that the income tax and national insurance contributions of contractors in senior "controlling" roles are deducted at source by the employing organisations rather than paid later by the contractor to Her Majesty's Revenue and Customs.
Philpott said in a post on his blog that, if contractors are forced to pay higher tax and national insurance contributions, then they will simply be likely to raise their fees.
As a result, he argued, either the finances of public-sector bodies would be hit by the increased costs of hiring these individuals or organisations would be forced to cut back on their use of contractors, both of which would be bad news for those hoping to improve public-service delivery.
Philpott said: "It's silly to portray contractors as tax-avoiding 'fat cats' who can afford to cough up extra taxes without any side effects. Only a minority are the 'top talent' media personalities that attract criticism, the majority are working long hours for comparatively little financial reward."
He added that, while it was understandable that the Government was looking to ensure everyone pays their fair share of tax at a time of austerity, it was "daft" to go about improving tax transparency in a way that could "easily harm public-sector reform, economic growth and jobs".
Read Philpott's full blog on the public-sector tax-dodge debate.
Information on determining the employment status of self-employed workers is available on XpertHR.