I have been catching up with some magazine reading this week. You know that pile of tomes that lurks in the corner and which you always mean to get round to reading but you never quite do? In my pile were a couple of issues of the Royal Society of Arts magazine. I can seriously recommend it for its thought leadership and downright interesting articles. In an issue from last year I found coverage of a new (well it was in September 2012) piece of research that the RSA had commissioned from YouGov called "Untapped Enterprise".
The research explores something now called the ‘informal economy’ which McKinsey called the 'grey economy'. It's when workers get paid cash-in-hand or when you pay the plumber with cash – undeclared income or payments. The interesting thing about this report is that it says the informal economy represents huge entrepreneurial opportunities for the UK and should be supported on its journey to join the ‘formal economy’. Whereas at the moment our government is far too focussed on punishing people who don't pay their taxes.
Let me give you some of the facts. HMRC estimate that £200billion is spent each year in the UK on undeclared work - that’s 10% of our GDP (the report points out this doesn't include drug dealing or prostitution!). This represents £4billion in uncollected taxes in 2010 alone. When you think the Heritage Craft industry that we are part of turns over £10billion each year, this gives you an idea of the scale of the problem or maybe we should start to call it an issue.
Of the 595 small business respondents to the YouGov survey, 1 in 5 had been part of the informal economy and 40% of those said it was because they needed the time to understand how to formalise their business. So while the informal economy may be vilified by government, with HMRC employing 600 agents to detect those not paying taxes, it is actually more complicated than that. The amount of red tape and regulations involved in setting up or running a small business doesn’t make it easy to conform. The RSA maintains that while government is focussed on detection and punishment, this huge resource, which could be such a benefit to our economy, remains untapped.
I wholeheartedly agree with the RSA and while we in no way condone companies or people not paying their taxes, there is a lack of vision from government to find a way forward from the impasse that currently exists.
In the current economic climate many people who have lost their jobs, have taken the decision to set up their own business. This means we are not losing talented individuals to the ranks of the unemployed but these hidden entrepreneurs are finding a way to explore their talents – a valuable resource for the UK. In the last 2 years, the report says that 5.9 million small businesses have been started. How many are part of the formal or informal economy we can’t be sure but the aim must surely be to HELP these hidden businesses to formalise the way they trade.
The RSA wants to help and encourage micro entrepreneurs which is what most of us are to move away from the informal economy. They believe that government could do a lot to help with stepping stones of support, such as
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