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UK To Tackle Hidden Economy

by Robert Lee,, London

08 January 2010

The UK government has announced the formation of a new panel of experts to recommend changes that aim to reduce the size of the 'hidden' economy and the 'tax gap' between taxes legally owed and those actually paid.

The Hidden Economy Advisory Group is formed from independent experts and led by HM Revenue & Customs (HMRC). It is chaired by Mike Eland, HMRC's Director General of Enforcement and Compliance.

The group's remit includes: examining the main barriers to someone in the hidden economy joining the formal economy, and recommending workable measures that might be introduced to remove or reduce those barriers; examining the motivations and behaviours that lead people to join the hidden economy, and making recommendations as to what HMRC can do to prevent and stop this.

Eland commented:

“We estimate that the hidden economy contributes to around 7.5% of the net tax gap, which means we could be losing in the region of GBP3bn a year from people who are living and working in the hidden economy. They also gain an unfair competitive advantage over businesses that pay their taxes. This new group of experts with a variety of experience will identify new practical steps to tackle this problem.”

“By understanding the behaviours, attitudes and circumstances of those working in the hidden economy, we will be able to identify the right mix of incentives and deterrence to encourage them to move into the formal economy and stay there – even when times are tough.”

The Hidden Economy Advisory Group was announced as part of the 2009 Pre-Budget Report. It will present initial findings in time for Budget 2010.

Members of the group include: Professor John Hasseldine, Tax Research Institute, Nottingham University Business School; Paul Webley, Professor of Economic Psychology, School of Oriental and African Studies at the University of London; Andrew Cave, Head of Policy, Federation of Small Business; and Aaron Barbour, Head of linksUK (interim), Community Links.

Representatives from the Department for Work and Pensions and local government will also attend the Advisory Group as observers.

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