Army of 'hidden' workers in the grey economy risk spreading virus

An estimated 1.7m workers with undeclared earnings could be forced out to work, encouraging the spread of Covid-19

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There are now more than 400,000 cases of Covid-19 worldwide

Chancellor Rishi Sunak is frantically working on a solution to save the UK’s five million self-employed workers - many of whom are faced with the choice between obeying a lockdown and earning a living - from financial penury.

The union representing “gig economy” workers, the Independent Workers Union of Great Britain, has launched legal action on behalf of its members faced with living on £94.25 a week. That marks a stark contrast with the 80pc salary support for employed workers on PAYE.  

The Treasury is working rapidly through the practical barriers that remain to a life-line - such as assessing the fluctuating incomes of some 15pc of the UK workforce - amid cross-party pressure from MPs, led by Liberal Democrat acting co-leader Sir Ed Davey.

But at least these are the people that the taxman actually knows about. An even bigger potential risk for public health are the people in the so-called “hidden economy”, beyond the reach of the Revenue.

These workers - from the dog walkers, to the home hairdressers and the cash-in-hand builders - can’t afford to stay at home in the face of a deadly, infectious enemy and run the risk of spreading Covid-19 while most others are hunkered down at home.

Measuring the hidden economy is by definition difficult because there are few figures. HMRC defines it as “undeclared” income, although many economists who have studied the field distinguish between the “grey economy” - legal but undeclared work - and the “black economy”, consisting of downright illegal activities such as drug-dealing or prostitution. 

Researchers such as the Institute for Economic Affairs have put the potential overall size of this shadow economy at between 9pc and 12pc of overall GDP.

The latest HMRC research from 2017, based on over 9,000 interviews, suggests an estimated 2.6pc of the population - around 1.7m people - were operating in the hidden economy with a taxable income.  Of these, almost 1m people are estimated to be ‘moonlighters’ with partially undeclared earnings, while around 650,000 are ‘ghosts’, unknown and unseen by the HMRC altogether.

Authorities estimate that they were responsible for around £3bn of the £35bn ‘tax gap’ in liabilities not collected by the tax authorities in 2017-18. More than half of the business (56pc) in this twilight world is carried in cash.

The issue for tackling coronavirus is the demographics of the “hidden” workforce, however. Although the term conjures up images of ‘Del-Boy’ types, replete with sheepskin coats and blingy sovereign rings, ‘hidden economy’ workers are most commonly younger, low-income households earning less than £10,000 a year. 

That means a toxic combination of a financial imperative to go out and earn, a lack of official support - at least so far - and a virus so infectious that every carrier gives it to 2.4 other people, according to Imperial College projections.

John Philpott, a veteran labour market economist at the Jobs Economist consultancy, says: “They are going to be very tempted to keep going. They are people who are living from hand to mouth constantly, who are going to have to scrimp for whatever they can get. What happens to them, whether they fall through the net, is unclear. I hesitate to use the word, but there is a kind of underclass, and we don’t know how they will respond to this… they are going to be pretty desperate.”

Professor Charles Goodhart, the former Bank of England rate-setter who has also researched the hidden economy, said the problem could be even worse elsewhere, particularly in countries such as the US, which have a much weaker social safety net. “It’s a worry, particularly more so in America, where there are many more of them and also they won’t go to hospitals. At least in this country they might be prepared to go to the NHS.”

Chris Sanger, head of tax at EY, says the fastest way to help the “hidden” could be through an extension of universal credit: “It will be difficult to do anything [quickly] apart from through the mechanisms that are already in place.”

Failing that, some kind of food voucher or coupon system verging on charity rather than the tax system could be the best means of support, adds Philpott, potentially organised through food banks or local authorities: “You can’t do it through any kind of income support because you can’t touch them. You would have to do it anonymously.” 

Until a workable solution is found, the hand-to-mouth ghosts in the economic machine are likely to hamper efforts to suppress the spread of the virus.