ODPM researchers urge rethink of shadow economy policies
The Government should rethink its attitudes and policies towards the informal economy, according to academics working for the Office of the Deputy Prime Minister (ODPM).
In a recently published conference paper, drawing on work completed for the ODPM, Mel Evans and Stephen Syrett of Middlesex University argue that the informal economy is the “cornerstone of coping strategies” in many deprived neighbourhoods.
One expert in the field, Professor Friedrich Schneider, estimates that the shadow economy makes up around 12.5 per cent of the UK’s economy (as a percentage of GDP), the OECD average is just over 16 per cent. The Government, however, estimates it is around 1.5 per cent.
The researchers emphasise that the views contained in the paper are theirs, not the Government’s, but it contains a number of significant challenges to the political orthodoxy of attempting to stamp out the shadow sector.
It notes that the recent “moral panic” about asylum seekers and “benefit scroungers” has intensified focus on the sector in the past months, as has the news of the deaths of more than 20 Chinese cockle pickers in Morecambe Bay.
“That Government and public alike should apparently be so shocked at such events is perhaps more curious than the likelihood of their increased occurrence. They might appear as the seedy unregulated underbelly of the economy, but they are nevertheless part of the main body.”
The informal economy, they argue, is in fact integral to the country’s main economy and is not just a deprived area or third world phenomena. They also claim that the evidence suggests that the informal sector is actually on the increase in developed countries and that the “burgeoning processes of economic globalisation, flexibilisation and the reconfiguring of state activity have further stimulated the growth of informal work. In policy terms this new reality needs to be recognised, as does a broader conceptualisation of what constitutes informal economic activity.”
Policy makers, the paper suggests, in focussing on illegal working, tax evasion and benefit fraud are actually bypassing the “positive contributions to social cohesion” from informal economic activity.
Unpaid work in the community can, and should, be considered as “mutual aid, community building or neighbourhood activity.”
Though it notes a number of negative consequences to the informal sector, for example the loss of state revenue, the risk of undercutting legitimate workers, and worker exploitation, the researchers also stress positive consequences, such as reducing the risk that those in poverty will resort to serious crime and enabling people to be active rather than idle and lose motivation.
“Given that there are clearly both negative and positive aspects of informal economic activity the challenge is whether and how to build upon the positive elements in such a way that complements efforts to tackle the negative aspects of informal economic activity.”
In order to tackle illegal activities where the negative impact is the greatest, controversial policy options proffered include the licensing of brothels and the legalisation of soft drugs.
Other radical, but less controversial suggestions focus on informal work. These include raising the basic level of income tax to encourage more people to work legally and the consideration of methods to allow asylum seekers and refugees to work legally. Other suggestions include the creation of schemes to encourage mutuality such as time banks, where people can contribute skills and work in return for help from others, which the researchers suggest could help promote “active citizenship” and develop entrepreneurial skills.
