How local heroes can cost the Treasury dear

The Government is missing a few billion. It's overlooking an obvious suspect, says David Nicholson-Lord

If Kenneth Clarke and his team from the Treasury want an explanation for Britain's vanishing tax revenues, they could do worse than examine chaos theory. This holds that the flexing of a butterfly's wings in China can, eventually, create a storm in New York. The smallest of actions, in other words, can influence the largest of events - general elections for instance.

The disclosure last week that the Government has over-run its borrowing target by about pounds 3bn, seriously limiting its scope for pre-election tax cuts, prompted another search for suspects - tax-fiddling corporations, the growth of low-income self-employment, the black economy. Yet, of the fastest-growing and most fascinating bit of the new tax-resistant economy, virtually nothing was heard - a strange omission indeed, since it promises in the long run to be of far greater importance, not least to government and its management of national finances.

On Saturday, the Sustainable Agriculture Food and Environment Alliance (Safe) is holding a conference in London to discuss a large and diffuse range of grassroots initiatives that have largely escaped the attention of policymakers and pundits. These range from credit unions to food co- operatives and involve significant numbers of people - hundreds of thousands. They take as their starting point the perception that the big, tax-yielding economy run by the state and its allies in business has lost its way.

The Safe conference will look, for example, at how communities can bolster the "local food economy" - usually by cutting out the middleman (ie supermarket) and restoring direct links between food producers and consumers. This includes farmers' markets (popular in the US and now starting in Britain), new consumer co-operatives (Out of This World, a green supermarket chain, opened its first store last November and plans 12 by the end of 1997) and the humble veggie-box - organic produce brought to your doorstep by a local grower.

But the Nineties have also seen a mushrooming of other self-help initiatives. The number of credit unions - highly localised, co-operative lending institutions - has tripled: they now have around 140,000 members. There are an estimated 400 local exchange trading systems (Lets), in which people barter skills and products through cashless currencies. Community businesses and co- operatives have boomed: there are over 1,100, compared with a handful 20 years ago.

Much of this activity has its roots in wider changes in employment and the economy. But to see it as merely part of the growth of self-employment or the black economy is to miss its significance - not least the radical challenge it poses, in the name of a new, informal local economic order, to the global economy.

In environmental terms and energy use the global economy is highly inefficient. Why bring Granny Smith apples 14,000 miles from New Zealand when we can grow them ourselves? Within the UK, we are eating roughly the same amount of food as 15 years ago - yet it travels 50 per cent further to arrive at its destination. The increase in "food miles" adds to pollution and packaging, means more chemical preservatives are used and puts small producers out of business.

While growing and buying locally makes far more sense, it will not be welcome to the Exchequer, since the cost of creating and cleaning up pollution generated by food miles counts as gross national product or economic "growth", and thus yields tax revenues. Nor do Lets commend themselves to the Treasury, since no money changes hands and there is no income to tax. The quality of life of those taking part may have improved - many Lets participants speak in glowing terms of the neighbourliness and self-esteem they have rediscovered - but quality of life is not taxable.

If one aim of such grassroots initiatives is to generate "social" wealth, another is local economic autonomy. Research is showing just how much money leaks out of local economies into the coffers of big, distant business. An estimated 80 per cent of supermarket takings are lost to the community: suppose this was recycled into local jobs?

Such thinking may herald the emergence of a remodelled pre-industrial economy in which economic power drains away from the nation-state into a network of towns, cities and regions. Such a prospect is still a long way off - but when butterflies flex their wings, the world (chancellors included) had better watch out.

For details of Saturday's conference, "Action on Food Miles - strategies for a local food economy", contact Safe Alliance on 0171 823 5660.