Last month Treasury minister David Gauke caused an outcry when he declared it was “morally wrong” to pay cash in hand to tradesmen. “Getting a discount with your plumber by paying cash in hand is something that is a big cost to the Revenue and means others have to pay more in tax,” he said.
Of course, it is indisputable that the so-called “hidden economy” is denting the country’s coffers. A report from the Committee of Public Accounts estimated that the annual cost in lost tax revenues could exceed £2bn but this relates to individuals whose sources of income are not registered. In reality, many registered traders take cash payments that they do not declare as part of their income, meaning that the total tax lost could be as much as £8bn, according to the Guardian.
But can the government realistically expect people to take a moral stance on cash payments? Few tradesmen, if they have any sense, will explicitly offer a discount for cash on the basis that it will reduce their tax bill. Instead they will offer a vague ‘discount for cash’ without specifying exactly what that discount is for. And there are some valid reasons for cash being preferable, of course. Cash doesn’t incur credit card transactions, cash doesn’t take four days to clear and cash doesn’t bounce. Most people who pay in cash, even if they suspect that some, if not all of the money, will be hidden from the taxman, will argue that ultimately it’s down to the tradesman to declare their cash income. This is reasonable enough. Most people have enough difficulty taking responsibility for their own tax affairs, let alone someone else’s.
Given what a mess the country’s finances are in, you can’t blame the government for going after the cash economy though. And making tax into a moral issue is a very cost-effective way to do it. HM Revenue & Customs focuses a lot of effort on tackling large-scale tax evasion involving havens and complicated planning schemes, but it doesn’t have the resources to go after every plumber, plasterer and electrician out there. So getting the rest of us on board saves it that trouble. And despite the public outrage over Gauke’s comments, it seems that there are plenty of UK taxpayers who are only too happy to shop tax dodgers to the authorities. Figures obtained by publishing group Bloomsbury Professional found that an HMRC tax evasion hotline received around 74,000 calls last year.
But the morality issues surrounding tax don’t only relate to its taxation. They also relate to how the money is spent. Most taxpayers will accept that tax is the price we pay to live in a civilised society, but they expect their taxes to be used wisely. Arguably, our taxes were not always put to best use in the recent past. So if the government wants us to buy into its morality campaign, it must keep its side of the bargain in future.