The "Black Economy" (Hansard, 2 December 1981)

§ Lord Thomas of Swynnerton
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ The Minister of State, Treasury (Lord Cockfield)
My Lords, both revenue boards keep their procedures for the detection and prevention of evasion under constant review; and additional resources have been allocated for this purpose by redeployment of staff. Thus, it has recently been announced that the Inland Revenue is to redeploy some 400 staff to counter tax evasion in the black economy.

§ Lord Thomas of Swynnerton
My Lords, I am grateful to my noble friend for that reply. I wonder whether he has had the opportunity of seeing a recent article in the Journal of Economic Affairs which suggests that the size of the co-called "black economy" may be approaching £28,000 million.

§ Lord Cockfield
My Lords, this is an important matter; it needs to be taken seriously and we do take it seriously. Nevertheless, I do not think it helps to exaggerate the figures. My noble friend referred to the work of Professor Feige and the article that he wrote in a recent issue of the Journal of Economic Affairs. That article starts with the words: I count myself among the growing number of macro-economists who sense that there is something terribly amiss with our profession". There are some people who might think that those words could equally be applied to Professor Feige's estimates.

§ Lord Thomas of Swynnerton
My Lords, I am grateful for that supplementary reply. Bearing in mind the wide discrepancy which seems to exist on this very important matter, and considering that the subject is one which affects practically all aspects of society—both morals and the collection of national statistics—would my noble friend consider it desirable to have a debate in which this matter may be further discussed?

§ Lord Cockfield
My Lords, my noble friend raises the question of a debate. That is not a matter for me to deal with. A large number of estimates of the size of the black economy have been produced by various people: by Sir William Pile in evidence to the Expenditure Committee in another place; Sir Lawrence Airey recently in evidence to the Public Accounts Committee; and estimates have been produced by the Institute of Economic Affairs, by the Institute of Fiscal Studies and by the Central Statistical Office. They tend to range over a very wide span. The important aspect, rather than trying to estimate something which is inherently impossible to estimate —because one is dealing with something which people are deliberately trying to conceal—is to come to grips with the problem. Both revenue departments are doing so and have shown considerable success in that direction.

Lord Paget of Northampton
My Lords, there are two questions which I should like to put to the noble Lord with regard to this problem. First, how many of your Lordships have never paid for some services in cash? Also, how many are naïve enough not to know why they did so?

§ Lord Cockfield
My Lords, I am answerable only for myself and not for others of your Lordships.

Lord Spens
My Lords, is the Minister aware that the size of the black economy may not be as great as people say? For example, there are 10 million pensioners and each pensioner is entitled to earn £1,800 a year before he comes within the purview of the Inland Revenue. If they were all to earn £1,800 a year, that would be £18 billion of perfectly legitimate economy.

§ Lord Cockfield
My Lords, I very much fear that I cannot entirely agree with the noble Lord. The retirement pension itself is liable to tax, so that in deciding whether a person is or is not liable to income 1036 tax one has to add together the retirement pension plus his other earnings. But normally in cases of the kind that the noble Lord mentions the other earnings would be picked up through the PAYE procedure anyway.

Lord Wallace of Coslany
My Lords, is the noble Lord aware that the Inland Revenue is at least very competent and efficient in one direction; as soon as the state old-age pension is raised those of us who also receive another pension receive a prompt notice some seven days before the increase which indicates an increase in our schedule and taxation?

§ Lord Cockfield
My Lords, I am grateful to the noble Lord for his tribute to the Inland Revenue. As pensions are liable to income tax—a situation which has always existed—it is obviously for the benefit and convenience of everybody that the system should work as effectively and efficiently as possible. I am grateful to the noble Lord for his tribute that it does do so.

Viscount St. Davids
My Lords, would the noble Lord not agree that, though it is of course very right to suppress any form of illegality, it would be better, if it can possibly be done, to cause all these small forms of private enterprise to move over slightly so as to bring them within the legitimate field of occupations, and thus produce a new young crop of legitimate enterprises which we so badly need?

§ Lord Cockfield
Yes, my Lords, that is a very highly desirable objective.

§ Lord Beswick
My Lords, does the noble Lord recall that in the debate on the Queen's Speech he claimed that he had reduced the number of Inland Revenue officers below the level of the Royal Naval strength? Does he not think that this reduction has something to do with the fact that so much tax is not now being collected?

§ Lord Cockfield
No, my Lords, that does not follow. The total staff of the two revenue departments is now just below 100,000. The important aspect is the way that those staff are deployed rather than the absolute numbers. Both revenue boards are directing their efforts very much to this particular problem.

§ Lord Wells-Pestell
My Lords, is the noble Lord aware that he has not answered his noble friend's question as to whether there should be a debate on this matter? Would he not inform his noble friend that he is entitled to have a debate on this matter if he wants one?

§ Lord Cockfield
My Lords, with respect to the noble Lord, I did answer the question. I said it was not for me to deal with.