The Debate: Are cash-in-hand payments morally wrong?
Treasury minister David Gauke sparked controversy this week after criticising homeowners who give workers cash-in-hand payments.
“I think it is morally wrong. It is illegal for the plumber but it is pretty implicit in those circumstances that there is a reason why there is a discount for cash,” he said. ”That is a large part of the hidden economy.”
It’s estimated that the Government loses about £2 billion each year to the black economy as tradesmen fail to pay VAT or income tax by not declaring payments and keeping them “off the books”. But as both Boris Johnson and Nick Clegg admit they pay tradesmen cash-in-hand, is it right to condemn cash-in-hand payments as immoral? Or should, as Ed Miliband suggested, the Government be focusing on large-scale tax avoidance, with the pressure removed from already squeezed trade workers and customers?
Colin C Williams holds that in business there are many downsides to cash-in-hand, including damaging the economy and the worker’s own individual rights. However, when offering a small payment to a friend or relative for a favour, or offering to work for a smaller cash fee to those who can’t afford the full amount is an entirely different matter. Aaron Martini, who runs a small business, feels that Gauke’s comments are damaging to the industry, and fail to take into account that cash-flow can be a struggle for many tradesmen who rely on cash payments to start work on their next job.
Which do you agree with?
COLIN C WILLIAMS
Much cash-in-hand work is morally wrong. This is because when for example a plumber does a job cash-in-hand and does not declare the earnings for tax purposes, this has a range of negative consequences.
For legitimate businesses, the work results in an unfair competitive advantage for cash enterprises over legitimate businesses. For cash-in-hand workers, the problems are that they: lack access to health and safety standards; cannot build-up rights to a state/access pension scheme and other benefits; suffer a constant fear of detection and risk of prosecution; lack legal protection relative to legitimate workers, and are unable to access loans such as to expand their business.
For customers, meanwhile, the negative consequences are that they lack: legal recourse to the law if a poor job is done; insurance cover and guarantees in relation to the work conducted.
Finally, the problems for governments are that it: causes a loss of revenue for the state in terms of non-payment of taxes owed; has knock-on effects on the state’s attempt to create social cohesion by reducing the money available; causes a loss of regulatory control over the quality of jobs and services provided in the economy, and if a large proportion of the population commonly engages in such endeavour, it may well encourage a more casual attitude towards the law more broadly.
On the face of it, therefore, cash-in-hand work is morally wrong. However, over half of all cash-in-hand work in the UK takes a very different form. It involves conducting ‘paid favours’ for close social relations such as kin, friends, neighbours and acquaintances in order to help the person out. An unemployed cousin, for example, may be given some money for decorating your front room. The principal reason is to give them some much needed money. To avoid one’s offer of money being rejected, which is highly likely if it is seen as ‘charity’, one asks them to do a task so that they will accept the offer of money. For those doing paid favours for others, meanwhile, the principal reason is often to help them get a task completed which they wouldn’t otherwise be able to afford. In a recent survey conducted in West Cornwall, for example, a plumber explained his cash-in-hand work for elderly local people as follows:
“I do work sometimes which you would call off-the-books. A lot of retired people around here would not be able to afford to get their heating mended if I didn’t. They’d probably end up freezing to death in their homes. I just charge them a token fee if I know that they cannot afford what the company charges for the work.”
Indeed, such work has been termed a ‘moral economy of paid favours’.
Sometimes, therefore, cash-in-hand work is morally wrong, as when a plumber engages in a profit-motivated cash-in-hand transaction and deliberately does not declare the transaction to the Revenue. At other times, however, such as when a ‘paid favour’ is undertaken for or by a close social relation to help them out, cash-in-hand work is morally right. It is not perhaps as easy to draw simple answers, therefore, as was first thought.
Professor Colin C Williams is Director of the Cluster for Research on the Informal Sector and Policy (CRISP) at the University of Sheffield.
David Gauke doesn’t understand the situation we find ourselves in. Tax avoidance is not acceptable, but cash payments are essential for the livelihood of many tradesmen. In the current economic climate comments like these don’t help the little guys.
I have a small business so cash flow can easily become a problem, I have seen many tradesmen go out of business as a result. Cash payments are fundamental to the day to day running of my business, they mean I am able to buy materials and tools. I can’t afford to wait five days for a cheque to clear because customers often want their projects to begin immediately.
The majority of tradesmen are honest, we pay our taxes. Mr Gauke’s statement is damaging to our industry, which is already tarnished with an undeserved bad reputation.
My advice to people who are concerned about hiring immoral tradesmen is that they should always receive an invoice breaking down the cost of the job, including VAT. Homeowners should always be wary if a builder wants the full amount for work in cash up-front, but it is not uncommon for a deposit to be paid that will be used to help the tradesman cover the cost of materials. It works both ways and it’s based on trust, which is why Gauke’s comment is so damaging. So while providing enough working capital for the tradesman to undertake the job, homeowners should only make the full payment when the work is completed to their satisfaction.
When cheques are phased out we will rely on cash payments even more. The Government should be providing guidance on alternatives to cash payments for tradesmen, rather than pointing the finger at honest hard working people like myself.
Aaron Martini has been in the building trade for 19 years and is a member of RatedPeople.com
Further comment from Tariq Dag Khan, CMO of RatedPeople.com
The reality is that there is little or no alternative to cash payments for many tradesmen, and criticising the whole industry belies a misunderstanding of the situation many customers and tradesmen are in.
There is a great deal of trust involved when hiring a tradesman for both the tradesman and the customer and therefore cheque payments do not provide a viable alternative especially when, if the cheque bounces, the tradesmen could be dangerously out of pocket and in some circumstances forced out of business as a result.
What do you think? Leave your comments below.Tagged in: cash in hand, David Gauke, tax, tax avoidance
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