Britain's black market puts cash in pockets

Wearing blue overalls and carrying a worn bag of plumbers' tools, he turned up on the doorstep of a friend's London house one recent Saturday morning, recommended by a local shop.

He worked-cheerfully all morning repairing pipes and installing appliances, pocketed L14 ($31) in cash, and drove away, whistling.

He was one more tiny chapter in what a new Civil Service report here calls "perhaps the most intractable problem faced by Western economies" today: the steady growth of the "black economy" -- weekend and evening jobs settled in untraceable and convenient cash.

That description is controversial -- some experts agree with it, others are more cautious. But the problem is considerable nonetheless, not just in Britain but all over Europe, as carpenters, electricians, roof-repairers, auto mechanics , and even white-collar workers try to avoid high tax rates and cope with inflation.

In Britain alone, the director of the Board of Inland Revenue, Sir Lawrence Airey, told Parliament last June the "black economy" was about 7.5 percent of the gross domestic product, a tax loss to the Treasury of as much as L3 1/2 billion ($8.75 billion) every year.

"Of course," said a spokesman for the Inland Revenue by telephone recently, "that's basically a guess. No one really knows how large the black economy is." Other estimates put it considerably higher.

The International Labor Organization in Geneva, which published a study last autumn, now believes the problem is growing steadily in most industrial countries. A report by the Organization for European Cooperation and Development (OECD) in Paris puts the total black economy in major countries including Japan at about $240 billion, about 4 percent of members' total gross national product.

Other experts estimate the number of workers involved now equals the total figure of unemployment in OECD countries: more than 23 million.

Another report just issued comes from two civil service unions, and has been submitted to Chancellor of the Exchequer Sir Geoffrey Howe.

It argues, with facts and figures, that if the government hires more tax inspectors, it could save many times the cost of the new men. It would also cut the amount of money the government has to borrow every year to keep itself going , the so-called "public sector borrowing requirement."

Reducing that requirement has been an aim of Margaret Thatcher's government, but so far it has been running at least L3 billion ($7.5 billion) over target.

In an interview, the president of one of the civil service unions, John Bishton of the Association of her Majesty's Inspectors of Taxes, listed other kinds of tax evasion.

* Casual workers, especially on newspapers in Fleet Street, who sign in using fictitious names. "Mickey Mouse" and "Oliver Cromwell" have been two favorites in the past.

* Directors of small companies who fail to deduct income taxes from their own and their employee wages week by week, then pay it in a lump sum at the end of the year.

* People who are entirely self-employed.

* People who register as unemployed, draw welfare benefits, but simultaneously work part-time at weekends or at night and do not declare the income.

His report, drawn up with the Inland Revenue Staff Federation, urges that more special tax investigation offices be set up in London, which offers "almost unlimited potential for tax investigations."

The report cited two cases where special tax teams had generated extra tax revenue. In the huge Smithfield Market in London, L800,000 ($1.8 million) worth of undeclared income was discovered, generating about L266,666 ($599,000) in taxes. In Fleet Street, a close look at casual workers has yielded about L2 million ($4.5 million) in taxes. Employers must now deduct taxes at the source.

Mr. Bishton knows full well that Britain's economic woes are causing cuts, not increases, in the civil service these days. "But we feel the chancellor should know the situation," he said. "It's up to him to decide w hat to do."