DATELINE: LONDON

No tax please, we’re British!

Carol Kennedy February 8 1982
DATELINE: LONDON

No tax please, we’re British!

Carol Kennedy February 8 1982

No tax please, we’re British!

DATELINE: LONDON

Carol Kennedy

Unlike the French or the Italians, who regard outwitting the tax man as a national sport, Britons have traditionally enjoyed a reputation as scrupulous taxpayers. This reputation, however, may not last much longer. Late last year Parliament was forced to take notice of the nation’s fastgrowing extramural entrepreneurship by the committee of public accounts, a watchdog body on government spending which issued a report urging stronger action by the tax authorities on the black economy. The committee expressed the fear that “there is a real danger of tax evasion coming to be regarded as social -ly and morally acceptable.”

One of the most publicized cases in The Sunday Times and in a subsequent book has been the nimble accountancy practised by the aristocratic Vestey family—landowning, polo-playing friends of the Royal Family—whose multinational meatpacking and wholesale business spans the world. The Vesteys’ skill in legally avoiding more than minimal taxes (largely by the canny distribution of profits and losses among the different countries in which they operate) culminated in one remarkable payment of less than $23 tax on meat chain profits of more than $4.5 million. This discovery sparked public outrage last year—and caused some tax loopholes to be tightened—but it’s peanuts compared to the accumulated efforts of humbler Britons, all vigorously pursuing Thatcherite enterprise outside the system. As a 35-yearold accountant quoted in The Daily Telegraph said: “There

comes a point when you have got to accept that the supposedly lawful way of doing things has broken down. I now act for so many people who are quite clearly

concealing the bulk of their income that I am joining their ranks myself.” Sociologist Stuart Henry puts it more bluntly: “Everyone, from dustmen to doctors and from directors to dockers, is on the fiddle.”

The uncounted, untraceable millions of dollars represented by deals involv-

ing barter, moonlighting and sales conducted with wads of used bank notes instead of cheques are needling the ingenious sleuths of Inland Revenue, who last year estimated the black economy to be the equivalent of about 7.5 per cent of Britain’s gross domestic product of goods and services—a loss to the tax coffers of more than $8.9 billion in uncollected taxes. Some economists put the estimate at more than twice that amount. But when even the chairman of Inland Revenue, Sir Lawrence Airey, admits to contributing to the black economy by paying his window cleaner in cash, the impossible scale of the problem becomes apparent: as the old song says, everybody’s doing it. s “The hidden econ7 omy is an everyday § feature of ordinary I people’s lives,” says ^ Henry. “It is every* where and nowhere.” Once largely confined to laborers who moved from one cash-paid job to another, black economy practices are now sweeping into the professions in a sophisticated version of old-style barter. Doctors, dentists, accountants and lawyers increasingly accept payments “in kind”: a case of whisky or wine, a painting, a side of beef—all slip conveniently through the tax net. Small household jobs are done in exchange for a brace of pheasants or some freshly caught trout; unofficial real estate deals are conducted without benefit of a professional agent for a few hundred dollars “on the side.” One dentist encourages a quarter of his patients to pay in foreign currency. “It helps pay for the summer holiday we have in the south of France and the ski holiday we have in the I winter,” he explains. “With the ^tax I pay, it wouldn’t be possible

to do it otherwise.” Government figures put the number of two-job Britons at anywhere from 800,000 to 1.2 million, but unofficial estimates range up

to three million. “Would you like it in cash?” are magic words when dealing with service people attached to retailers. The carpet-layer or curtainmaker will probably undercut his company’s prices and offer to do the work in his spare time. The painter or carpenter may well be a teacher, policeman or fireman seeking to supplement a low salary. For years the construction industry has been a prime source of tax evasion, and there are plenty of “cash only” builders around, such as Martin Joe, an east midlands character featured recently in Financial Weekly as

one of the small businessmen most likely to survive the recession. “His primary yardstick of cash flow is the thickness of the wad of ‘fivers’ he carries as a reserve,” said the journal, noting that by saving on overhead (in his case including tax) and hiring help only as needed, Joe “is applying all the management techniques for survival in a recession preached by business schools and governments alike.”

There must be a lesson here for politicians of the Margaret Thatcher stamp, who constantly proclaim their willingness to provide incentives for the

entrepreneur if only the entrepreneur would come out of the woodwork and start up all those small businesses on which Thatcher and her chancellor, Sir Geoffrey Howe, pin much of their hope for Britain’s economic revival. If Thatcher could crack the problem of how to make the black economy officially productive, the present astronomical number of unemployed Britons— almost three million (12.2 per cent of the work force)—would be significantly reduced. (A few years ago, as a result of a French campaign against local moonlighters, it is estimated that 30,000 permanent jobs were created.)

Furthermore, according to one bank manager’s estimate, the country would be enriched by about 10 times the total revenue the government got from North Sea oil last year. Even Prince Charles remarked last fall on the potential of finding a solution to the swelling ranks of moonlighters. The black economy, he told an audience of professional engineers, showed that people did not shirk work but welcomed freedom—from companies, unions, even government: “Here is an area that they need more study to see how such a phenomenon could perhaps be turned to everyone’s legal advantage.”

Meanwhile, the tax men have been finally goaded into a blitz on the black economy. Reacting to the select committee report, Inland Revenue has diverted 400 staff members from other duties to sniff out Britain’s growing army of ghost workers. But experience suggests success will be limited. As the magazine Accountancy noted last summer, trying to identify the black economy was “like a man who has been blind from birth trying to describe an elephant. All one can be sure of is that it is large and it is there.”