‘Black Economy’ Thrives in Ailing Britain : From Plumbing to Programming, Untaxed Cash Services Proliferate

With a bit of luck, an American author who moved to Britain soon got the name and home telephone number of a royal household electrician, by reputation one of the neighborhood’s best. The electrician moonlights for cash in the “black economy.”

He has lots of company.

“A year ago, my son left school and is still unemployed,” a British journalist said. “He could get a job paying 40 pounds ($57) a week. But it would cost him 2 pounds and 70 pence ($3.85) a day to get there on the train. After taxes, national health and other costs he would net 17 pounds ($24) a week.

“On the dole he gets 12 pounds ($17) a week and by working (for cash) two or three days a week for a gardener and a builder, he’s way ahead of where he would be (on a payroll).

“I don’t know if he’ll ever take a job.”

Beyond Moonlighting

The son is in the black economy.

Unrecorded and untaxed, Britain’s black, or underground, economy appears to be the most dynamic sector in this economically ailing nation.

It has gone far beyond the moonlighting of unskilled workers and small-time chiselers usually associated with concealed economic activity.

“It’s too bad we can’t organize a black economy section,” joked Norman Willis, general secretary of Britain’s Trades Union Congress. “Nobody will admit he’s in it.”

At its most visible level, the black economy embraces almost the entire range of home maintenance, from plumbing and carpentry to gardening and window washing. For cash, you can get cut-rate car and television repair, interior decorating and even architecture.

Take Out Small Ads

To plug in, a customer needs to look no further than the small ads in the local newspaper or the cards posted on a local merchant’s premises. Typically, they give a first name and a telephone number where somebody says the repair person will return the call.

Naturally, there is no guarantee. “I hate these cowboy plumbers,” a British executive who lives in the upscale Chelsea district of London fumed. “They hit and run, and there’s no backup if something goes wrong.”

But the price is appealing--often one-third to one-half less than an on-the-record transaction that must include a share for the tax man in value-added and income taxes. In some areas, it can be a challenge even to find a repairman willing to work “on the books.”

For business offices, moonlighters offer computer programming, accounting, advertising preparation and other services that can be performed after hours in the black economy.

A British expert on the Middle East was asked to write a risk assessment of an Arab country for the London office of a U.S. oil company. “They offered to pay in either of two ways,” he said. “Either straight and taxed or ‘expenses’ and, therefore, not taxed.”

The analyst went black: The accounting books showed his payment as reimbursement for expenses he never incurred, and the government thereby lost the tax revenue.

By nature, hidden activity is difficult to quantify. But illegal work and trade is widely estimated to be equal to about 7.5% of Britain’s gross domestic product, which was $520 billion in 1985. Other estimates of the black economy range from 4% to as high as 15%.

‘We Can’t See It’

“We can’t see it (the black economy) or touch it, and we can’t say whether it is big or small,” said Lord Young, Prime Minister Margaret Thatcher’s employment secretary. “But we are aware people are earning income and not paying taxes, and we would like to bring them in from the cold.”

Government losses to the black economy are conservatively estimated at $6 billion a year. The Treasury’s tax arm, Inland Revenue, is increasing the staff of its special black economy unit and expects to have 880 “ghost-busters” by 1988 to track down full-time earners of unrecorded income.

Nearly everyone agrees that the practice is not only growing but also has almost become the standard way of doing business.

“It used to be after you got an estimate for fixing your gutters, you’d ask how much that would be in fivers (five pound notes) and the price would come down,” one Briton said. “Now it’s the other way--the estimate is given assuming you’ll pay in cash. If you bring out a checkbook, then the price goes up.”

As tax evasion, the British black economy has counterparts virtually everywhere that governments collects taxes, including the United States and the rest of Western Europe. (In the Soviet Union, a Gargantuan black economy exists not so much to escape taxes but to supply scarce goods and services.)

Amnesty has been considered. But because the British tax burden is so great--the lowest rate at 29% is more than the higher rate of 28% under the new U.S. tax law--it is difficult to lure persons deeply involved in the black economy back into the taxable mainstream.

Furthermore, discovery could mean more trouble than meeting tax obligations for some Britons--the welfare cheaters.

A dog breeder, for instance, has lived on the black economy for 20 years, making a decent living, tax-free. He also draws government benefits, falsely claiming unemployment although he is self-employed, a common ploy.

In a recent Harris survey, data suggested that 350,000 to 450,000 Britons are drawing unemployment pay and benefits while at the same time working on the side for cash or even operating a small business.

“We are in the process of tightening up on (welfare) fraud as well as tightening up on the black economy, and these will reinforce each other,” a Treasury official said.

In fact, the black economy’s size raises questions about the nature of British unemployment, which at 11.5% of the work force is the hottest political issue in Britain. How destitute are the more than 3 million officially listed as jobless? And how much fraud is there?

According to the Harris findings, based on information about unemployed persons known to a representative cross section of Britons, only 29% of the officially unemployed population, or about 1 million people, were “genuinely unemployed, desperate for work, looking for a job and unable to find one.”

Most of the others find their share of Britain’s $12-billion-a-year dole adequate to their needs and are not seeking work of any kind.

The rest--about 11%--work part time or full time in the black economy and continue to collect on the dole, which continues indefinitely.

Although the black economy appears to have institutionalized a portion of unemployment, Thatcher’s Conservative government takes a relatively benign view of those in the black economy who may cheat on taxes but do not at the same time pose as unemployed persons.

“It is an outlet for entrepreneurial energy in Britain,” a Treasury official said.