Auditors place pounds 36bn value on hidden economy

THE 'hidden economy' is worth more than pounds 36bn a year and is costing the country several billion pounds a year in lost tax, according to a National Audit Office report published today.

Not only the self-employed but also 'employees, the unemployed, the retired, students and housewives' are all contributing to the hidden economy - defined as 'activity which is not made known to the tax authorities'.

The report by Sir John Bourn, the Comptroller and Auditor General, identifies among the worst offenders building workers, car salesmen, market traders, guest house owners, bookkeepers and auditors, insurance agents and brokers, scrap dealers and road haulage contractors.

But the report also reveals that the 109,000 largest employers in the country were late with 62 per cent of their monthly PAYE returns. This suggests many big firms are hanging on to tax payments deducted from employees until the last moment to maintain cash balances.

The report, which will be considered by the Public Accounts Committee in the New Year, shows that the amount collected from ghosts - people for whom no tax records exist - and moonlighters - registered taxpayers with undeclared jobs - has grown significantly because of a big collection drive.

Over the last five years it has risen pounds 35.1m to pounds 86.5m in 1992- 93, despite staff shortages. But total 'compliance' enforcement by the Inland Revenue in 1992-93 yielded some pounds 4.6bn of which pounds 1.7bn was directly related to the hidden economy. But because 'Schedule D' compliance work, forcing ghosts and moonlighters to pay, is time consuming and less cost-effective than some other forms of tax collecting activity, switches of staff to more productive areas mean that a total of 42 tax districts currently have no one carrying out Schedule D compliance.

The NAO recommends that the Inland Revenue should carry out further analysis to examine the most cost-effective way of allocating resources.