IFS hits back at FCSA criticism of NIC report and self-employed

The Institute for Fiscal Studies (IFS) has hit back at the Freelancer & Contractor Services Association (FCSA), after the FCSA labelled a recent IFS report “fundamentally flawed”.

The FCSA made the comments yesterday on the IFS report, which called for the alignment of National Insurance Contribution rates to be aligned due to the “minimal” difference in state benefits funded by NICs for self-employed and employed people.

But the FCSA argues the report is “fundamentally flawed” because self-employed people do not have access to NICs-funded statutory benefits like unemployment benefit or sick pay and when it comes to maternity allowance, employees receive at least 57% more in maternity pay than self-employed workers, based on FCSA’s analysis of a 2012 survey by employment law adviser XPertHR.

However, Helen Miller, IFS associate director, argues these benefits are “very small” in terms of what they cost the government to provide, and much smaller than the cost of giving lower NICs to the self-employed, amounting to £5.1bn this year, according to official estimates from HM Revenue & Customs and the Department for Work and Pensions. 

“We do acknowledge that these small remaining differences in state benefit entitlement could justify a correspondingly small difference in NICs rates, but nothing nearly as big as the difference currently seen,” Miller said.

“There is an important difference between publicly funded benefits and employment rights. Employment rights are given by employers to employees. Things like sick pay and holiday pay, and the part of maternity pay that is funded by employers, are simply one part of remuneration. They are not benefits that are being given by the government to employees.”

Commenting on the report, FCSA CEO Julia Kermode said: “Once again the self-employed are coming under attack for not paying enough tax, with IFS arguing that the NICs system needs addressing so that employees are not being penalised by an unfair system. That is wholly unjustifiable and they should take a proper look at their figures and the differential benefits provided that account for the different NICs rates paid.”

But Miller hit back, claiming the IFS is in no way attacking or chastising the self-employed.

“We make no criticism of them or their behaviour. Rather, we are criticising government tax policy, on the basis of verifiable facts about how the tax and benefit system works and our analysis of why most of the reasons used to defend lower rates for the self-employed simply don’t hold. We invite all interested parties to read our report.”