Recently, David Gauke, the Exchequer Secretary, told The Daily Telegraph it was “morally wrong” for home owners to negotiate discounts with plumbers and traders by paying them in cash. He suggested they were helping traders to break the law, by allowing them to evade VAT or income tax.
There is no law against paying someone in cash, but tradesmen are under a legal obligation to disclose their earnings to HMRC and say whether they are liable for VAT or income tax. Mr Gauke’s comments presumably sought to reflect a growing concern in Whitehall about a cash-in-hand economy, which is estimated to cost Britain billions of pounds a year in lost tax revenues.
However, Mr Gauke’s comments put other Ministers on the back foot and embarrassed the Government. In follow-ups to his comments, the Prime Minister, the Chancellor and other senior members all admitted they had previously paid traders cash-in-hand. Media research also found that parliamentary expenses files showed reimbursement at the expense of the taxpayer, to at least two Cabinet ministers, who had avoided paying VAT on goods and services for their second homes by paying in cash.
Three-quarters of more than 15,000 Daily Telegraph readers, who took part in a survey on their website, said they did not see anything wrong with it. Just one in 10 agreed that it was “morally wrong”.
Mr Gauke seems to be insensitive to the real world, where cash payments are often a cash-flow lifeline for small businesses, in times when credit-control often intrudes into transactions, delaying legitimate payments by other means. He also seems to be making a sad judgement that most people and small traders in particular, are not honest, law-abiding citizens.
John Whiting, the head of tax policy at the Chartered Institute of Taxation, said that it would be helpful if Mr Gauke and the Treasury issued clear guidance on the morality of tax avoidance.
The Treasury soon issued a statement on behalf of Mr Gauke, saying: “The Tax Minister was clear that it is fine to pay in cash, but where that is done in order to artificially reduce a tax bill, that is, of course, wrong. While this is clearly not in the same league as multi-million pound tax dodges – and our priority remains to tackle large-scale aggressive avoidance by the richest in our society – the hidden economy does cost the Exchequer and it does mean other people have to pay more in tax to fund our public services.’’
