Cheats' charter  (21/7/2004)

Real action to tackle the black economy in the trade is long overdue.

Recent steps in Ireland to tackle tax fraud in the taxi trade demonstrates the kind of systematic approach to the problem that many of us here would like to see.  While the planned action there may of course turn out to be ineffectual and the 'crackdown' in fact little more than huffing and puffing, the Irish authorities have at least publicly acknowledged the problem in a way specific to the trade and made concrete proposals to tackle the problem, which is certainly more than we've seen in the UK.

Of course, that's not to say that the relevant authorities are completely unaware of the problem and have done absolutely nothing about it.  However, while the couple of examples of drivers being brought to book for tax and benefit fraud mentioned in our recent article are clearly welcome, our own experiences suggest that this kind of thing is most probably only the tip of a very large iceberg.

Last year a widely reported case of a rape conviction for a London minicab driver revealed that all 32 of the firm's drivers were working illegally either in respect of their immigration status or because they were claiming benefits.  While such an extreme example was clearly linked the to then unlicensed status of the London minicab trade, it should go without saying that the UK's licensed private hire and taxi trades contain many people working in the 'informal/hidden' economy, although this is more typically confined to tax evasion, although there are also plenty examples of benefit fraud.

Anecdotal evidence suggests that in some areas tax evasion is rife, and could involve the majority of drivers in the local trade.  Typically this involves part-time drivers who have a full-time job elsewhere and to that extent it may not be immediately obvious to the authorities that the individual is working 'on the side' in the trade, and even the checking of licensing records by the Inland Revenue is hardly conclusive since there are many genuine examples of drivers who keep a badge but do not use it.

On the other hand, where badges are not handed out like confetti and part-timers are less predominant it seems that the problem is less acute, presumably since it is probably more difficult for full-time drivers to declare nothing at all to the Inland Revenue.

While it is certainly the case that the multi-agency 'clampdowns' which often target vehicle and driver licensing issues often target benefit fraudsters, it seems highly likely that income tax fraud is more economically significant than benefit fraud, given the larger number of people involved, and despite the smaller loss to the public purse in each individual case.

Of course, the amounts involved are relatively small for individual drivers, which is perhaps why the authorities find it difficult to devote significant resources, but in areas where tax-dodging drivers predominate the overall impact on the trade is clearly significant.  Lord Grabiner's 2000 report The Informal Economy outlined the economic effects of tax and benefit fraud: "The hidden economy also acts as unfair competition.  Firms in the hidden economy undermine those in the formal economy: they may under-cut their prices and hold down the wages and conditions of legitimate workers."

It is ironic that many in the trade who bleat about the number of vehicles operating and the low wages in the trade are also quite willing to turn a blind eye to tax and benefit fraud, while of course it is that fraud that increases the number of vehicles operating and drives down earnings.  Indeed, some try to justify fraud in view of the often pitiful earnings in the trade, but this is hardly fair on those who do pay their taxes - if we all paid them then perhaps we would all earn a bit more in the first place, since many of the fraudsters would disappear if they couldn't sign on while cab driving and/or evade paying tax.

While our recent article did mention that the Inland Revenue had taken some action following Lord Grabiner's report, whether a more systematic approach to the problem is ongoing or will take place in future may not be formally announced in the public domain.

The Office of Fair Trading's taxi and PHV study, for example, which aimed to identify competition problems in the market, completely failed to mention the issue, but then again this was perhaps symptomatic of its 'three wise monkeys' approach to 'fair trading'.

Click here to read views on this topic or post your own