Black Economy (Hansard, 28 November 1985)

§ 7. Mr. David Atkinson
asked the Chancellor of the Exchequer what is his estimate of the proportion of national income represented by the black economy.

§ 9. Mr. Colvin
asked the Chancellor of the Exchequer how much revenue in personal taxation and value added tax is estimated to be lost through the black economy.

§ Mr. Moore
It is not possible to form any reliable estimate of the size of the black economy or, therefore, of the consequential revenue loss in personal taxation as outside estimates of its size vary very widely from 2 per cent. to 16 per cent. of GDP.

§ Mr. Atkinson
Does my hon. Friend agree that there will be a sizeable black economy for as long as personal taxation remains as high as it is and the bureaucratic impediments remain a numerous as they are? What hope can he offer that taxation will soon come down to the levels that he referred to in answer to a previous question, enjoyed by other countries? What progress is being made in amending the sixth directive on VAT within the Community to raise thresholds for registration?

§ Mr. Moore
I shall try to concentrate on one of the questions. I recognise, as does my hon. Friend, that the reasons for the black economy are complex and uncertain and involve many social factors, but I do not think that any hon. Member would deny that a history of high taxation and high levels of bureaucracy have obviously been factors in encouraging the black economy. The degree to which we can reduce the levels of taxation and remove the burden of regulation on business will play a part in reducing the black economy.

§ Mr. Colvin
What can my hon. Friend do to remove some of the bureaucratic burdens, particularly in connection with VAT, which at present drive people into the black economy? Has he seen the survey published in The Times of 28 October, which shows not only the party political allegiance of those in the black economy, but that members of the Social Democratic and Liberal parties are among those most likely to be on the fiddle?

§ Mr. Moore
My hon. Friend will remember the White Paper entitled "Lifting the Burden", which I had the privilege of introducing in the House in July. He will know of the commitment of my noble Friend the Secretary of State for Employment and that of the Government to reducing the burdens.
The second part of my hon. Friend's question is somewhat subjective in character. However, when one 1005 considers the black economy, it behoves all of us to remember that there are two sides to transactions—those who receive the payments and those who make the payments. We should be concerned with that aspect.

§ Mr. Willie W. Hamilton
Does the Minister regard fraud in the City as part of the black economy, or what colour is it?

§ Mr. Moore
The Government regard all fraud, of whatever character, as completely unacceptable.

§ Mr. Campbell-Savours
Why should more civil servants be involved in pursuing social security fraud than Inland Revenue fraud?

§ Mr. Moore
The pursuit of fraud is not simply a reflection of the numbers involved. Despite reductions in the number of Inland Revenue staff over the past six years, there has been an increased commitment to Inland Revenue staff in that area. Specifically, 920 were committed to that work in November 1983. The key to the detection of fraud and evasion is better targeting and greater cost-effectiveness. [Interruption.] If the hon. Gentleman will listen for a moment, he will be happy to hear that the yield from investigating evasion went up from £111 million in 1979 to £371 million in 1983–84.

§ Mr. Stern
Would my hon. Friend care to estimate the effect on the size of the black economy of the SDP proposal to increase the basic rate to 39p, if it were ever to be implemented?

§ Mr. Moore
It is clear from an earlier response that as our starting rate is so much higher than that of our competitor countries, it must have a significant impact as a deterrent to honest declaration of income.

§ Mr. Weetch
Does the Minister agree that a great deal of the black economy is in the building industry, especially building contracts of small value? Does he further agree that that is caused by the steep rate of VAT on home improvements and extensions? Does he accept that VAT of 15 per cent. on such things is a retrogressive imposition, especially when the construction industry is flat on the floor in so many such places?

§ Mr. Moore
I cannot begin to believe that one could make such a subjective and negative judgment about the building industry. It is difficult to understand why, when the rate of VAT is exactly the same for that industry as for others, that should be supposed to encourage evasion.

§ Mr. Fairbairn
Does the Chancellor of the Exchequer appreciate that if those who employ a person did not have to pay income tax out of already taxed income on behalf of that employee, the number of people tempted into the black economy would be vastly reduced?

§ Mr. Moore
I have the distinct impression that that is one of our first Budget submissions, and I am sure that my right hon. Friend the Chancellor will have heard it.