Wednesday, January 27, 2010

What to do about the "Hidden Economy"?

In the 2009 PBR the Chancellor announced that HMRC would be establishing a Hidden Economy Advisory Group to take a fresh look at what can be done to reduce the hidden economy.

An announcement was made earlier this month that the group has now been formed and that it is expected to report back "on a Budget 2010 timescale" with an initial assessment of the current situation and proposals for practical and immediate steps that could be taken by HMRC.

So in just a few weeks the Group needs to:
  • examine the main barriers preventing people in the hidden economy joining the formal economy;
  • recommend workable measures that might be introduced to remove or reduce those barriers;
  • examine the motivations and behaviours that lead people to join the hidden economy; and
  • make recommendations on what can be done to prevent and stop people joining the hidden economy.

The terms of reference for the group suggest that far more time is required to produce any meaningful independent advice as:

The group will examine the tax system and HMRC’s administrative processes and consider the whether they facilitate or prevent people from joining the formal economy.

This will include an assessment of the barriers – financial, practical or other – that act as disincentives to entering the formal economy. It will also examine the behaviours and attitudes of those that choose to remain in the hidden economy.

Based on this assessment, it will consider what actions that HMRC can take to increase the number of people that make the transition into the formal economy. It will do this while ensuring that HMRC continues to act in a manner that is fair to those who already pay their taxes.
I applaud the initiative but I deplore the short time scale in which the Group is required to report initial findings. This would challenge a full time research team let alone a simple 'Advisory Group'. Am I alone in wondering if the mere existence of this Group is intended to provide legitimacy to announcements of a more heavy handed approach from HMRC in the next Budget?

1 comment:

  1. People don't 'join' the hidden economy, they are there until they make themselves known to the tax authorities. Being in the hidden economy is thus the default position. As with everything in life it is easier take no action than to take action to change a position. People need to understand that the default position (being in the hidden economy) is not the acceptable or legal position, but that education is the most difficult step for the authorities to achieve.