Cash-in-hand (United Kingdom)

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Cash-in-hand
Location: United Kingdom
UnitedKingdom map.png
Author: Colin C. Williams
Affiliation: Sheffield University Management School

Original text by Colin C. Williams Sheffield University Management School

In the UK in particular and in developed economies more generally, a recurrent question that customers ask of tradespeople, such as those doing home maintenance and repair work, is ‘How much for cash?’ Similarly, it is commonly the case that such tradespeople will give customers an official quote for doing a job with Value Added Tax (VAT) included, and then say, for example, ‘or 20 percent less for cash-in-hand.’

‘Cash-in-hand work’ refers to monetary transactions that are unregistered by, or hidden from, the state for tax, social security and/or labour-law purposes but which are legal in all other respects (European Commission 2007; Williams 2014; Williams and Windebank 1998)[1][2]. ‘Cash-in-hand’ work has been denoted in other contexts using over 45 different adjectives and ten different nouns. It has been called the ‘black,’ ‘concealed,’ ‘informal,’ ‘irregular,’ ‘hidden,’ ‘invisible,’ ‘off-the-books,’ ‘subterranean,’ ‘undeclared,’ ‘underground,’ ‘unobserved,’ ‘unorganized’ or ‘unregulated’ economy, sector, work, employment, activity, sphere or realm, to name but a few of the adjectives and nouns employed. It is immediately apparent when one examines these adjectives that they all describe something that is absent, insufficient or missing.

The one thing absent from ‘cash-in-hand’ work, and its only illegitimate feature, is that it is not declared to the authorities when it should be. It is not declared for three reasons: to evade paying direct or indirect taxes (income tax in the former case; VAT or excise duties in the latter); to make a fraudulent benefit claim (where someone who is officially unemployed claims state benefits while working); and to avoid labour legislation (such as employers’ insurance contributions, minimum-wage agreements or safety standards in the workplace). Cash-in-hand work covers only activities where the means do not comply with regulations but the ends (goods and services) are legitimate (Staudt 1998)[3]. It does not include criminal activity where the goods and services are themselves illegal, such as drugs-trafficking. The only illegitimate feature of cash-in-hand work, to sum up, is that the monetary transactions are not declared for tax, social security or labour law purposes (Portes 1994; Thomas 1992)[4][5].

Examining the extent of participation in cash-in-hand work, an English Localities Survey conducted at the turn of the millennium found that 4.6 percent of those surveyed had engaged in cash-in-hand work in the past twelve months (Williams and Windebank 2001)[6]. Similarly, a 2013 Eurobarometer survey found that 4 percent of respondents across the European Union (EU) had engaged in cash-in-hand work in the previous twelve months (Williams 2014b)[7]. These were, however, likely to be lower-bound estimates given the likelihood of under-reporting in these surveys.

Cash-in-hand work has traditionally been viewed as low-paid waged employment forced on marginalised populations by unscrupulous employers (Gallin 2001)[8]. Since the turn of the millennium, however, it has been recognised that much cash-in-hand work is conducted not only voluntarily but also on a self-employed basis. More recently, it has been recognised that much of this work is conducted for and by kin, neighbours, friends and acquaintances for community-building and redistributive rationales (see ‘Paid favours’ in this volume) (Williams 2004a,b; Williams and Windebank 2004)[9][10][11]. Indeed, the English Localities Survey found that some 20 percent of the cash-in-hand work that respondents had undertaken had been waged employment, 15 percent had been self-employment for previously unknown customers, and 65 percent had been ‘paid favours’ (Williams and Windebank 2001)[12]. This finding was reinforced at EU level in a 2007 Eurobarometer survey which found that in the EU 20 percent of cash-in-hand work had been waged employment, 25 percent had been self-employment for previously unknown customers, and 55 percent had been paid favours (Williams 2014b)[13].

How can participation in cash-in-hand work be explained? In recent years, the lens of institutional theory has been increasingly used. In institutional theory, institutions are defined as the cognitive, normative and regulative structures that give stability and meaning to social behaviour (Scott 1995)[14]. Institutions or governance mechanisms exist in every society (Baumol and Blinder 2008; North 1990). On the one hand, there are formal institutions, which are the codified laws and regulations. On the other hand, there are informal institutions, which are the ‘socially shared rules, usually unwritten, that are created, communicated and enforced outside of officially sanctioned channels’ (Helmke and Levitsky 2004:727)[15]; the norms, values and beliefs held by citizens reflect their individual views about what is morally right (Denzau and North 1994)[16].

The norms, values and beliefs of a society’s informal institutions may be ‘complementary’ if they reinforce formal institutions, or ‘substitutive’ if the rules they prescribe are not compatible with the formal institutions (Helmke and Levitsky 2004; North 1990)[17][18]. When there is symmetry between formal and informal institutions, cash-in-hand work will be largely absent since citizens will adhere to the legal rules of the game. If however there is asymmetry between a society’s formal and informal institutions (caused for example by a lack of trust in government), cash-in-hand work is more likely to be prevalent (Feige 1999)[19]. The view has therefore emerged that, the greater the non-alignment of formal and informal institutions, the greater the likelihood of cash-in-hand work (Williams and Shahid 2016; Williams et al. 2014, 2015, 2016)[20][21][22].

Evaluating whether or not this is the case, numerous studies have analysed whether there is a statistically significant correlation between participation in cash-in-hand work and institutional asymmetry. These studies have used ‘tax morality,’ which refers to the intrinsic motivation to pay taxes (Cummings et al. 2009; Torgler 2007)[23][24], as a proxy for institutional asymmetry. They have found a strong statistically significant association between participation in cash-in-hand work and the degree of institutional asymmetry in the EU (Williams and Horodnic 2016a)[25], East-Central Europe (Williams and Horodnic 2015a)[26], the Baltics (Williams and Horodnic 2015b,c)[27][28], South-East Europe (Williams and Franic 2015; Williams and Horodnic 2015d)[29][30] and the UK (Williams and Horodnic 2016b)[31]. Studies have also revealed that socio-demographic and socio-economic groups with lower tax-morality are more likely to engage in cash-in-hand work (Williams and Horodnic 2015a,b,c, 2016a,b)[32][33][34][35][36].

This opens up a new avenue for tackling cash-in-hand work, suggesting that there is a need to move beyond stricter penalties and higher risk of detection. Rather, it is necessary to tackle the causes both by improving formal institutions and by raising citizens’ norms, values and beliefs through campaigns to increase awareness of the benefits of taxation and the public goods and services that are provided by tax revenue (Williams 2014a)[37].

Notes

  1. European Commission. 2007. Stepping up the Fight against Undeclared Work. Brussels: European Commission
  2. Williams, C. and Windebank, J. 1998. Informal Employment in the Advanced Economies: Implications for Work and Welfare. London: Routledge
  3. Staudt, K. 1998. Free Trade? informal Economies at the US-Mexico Border. Philadelphia: Temple University Press
  4. Portes, A. 1994. ‘The Informal Economy and its Paradoxes,’ in N. Smelser and R. Swedberg (eds), The Handbook of Economic Sociology. Princeton: Princeton University Press: 89-101
  5. Thomas, J. 1992. Informal Economic Activity, Hemel Hempstead: Harvester Wheatsheaf
  6. Williams, C. and Windebank, J. 2001. ‘Reconceptualising Paid Informal Exchange: Some Lessons from English Cities,’ Environment and Planning A 33(1): 121-40
  7. Williams, C. 2014b. Explaining Cross-National Variations in the Prevalence and Character of Undeclared Employment in the European Union, European Spatial Research and Policy 21: 115-32
  8. Gallin, D. 2001. ‘Propositions on Trade Unions and Informal Employment in Times of Globalisation,’ Antipode 19(4): 531-49
  9. Williams, C. 2004a. Cash-in-Hand Work: The Underground Sector and the Hidden Economy of Favours. Basingstoke: Palgrave Macmillan
  10. Williams, C. 2004b. Cash-in-Hand Work: Unravelling Informal Employment from the Moral Economy of Favours, Sociological Research On-Line 9: 1-18
  11. Williams, C. and Windebank, J. 2004. ‘The Heterogeneity of Cash-in-Hand Work,’ International Journal of Sociology and Social Policy 24(1-2): 124-40
  12. Williams, C. and Windebank, J. 2001. ‘Reconceptualising Paid Informal Exchange: Some Lessons from English Cities,’ Environment and Planning A 33(1): 121-40
  13. Williams, C. 2014b. Explaining Cross-National Variations in the Prevalence and Character of Undeclared Employment in the European Union, European Spatial Research and Policy 21: 115-32
  14. Scott, W. 1995. Institutions and Organizations. Thousand Oaks: Sage
  15. Helmke, G. and Levitsky, S. 2004. ‘Informal Institutions and Comparative Politics: A Research Agenda,’ Perspectives on Politics 2(4): 725-40
  16. Denzau, A. and North, D. 1994. ‘Shared Mental Models: Ideologies and Institutions,’ Kyklos 47(1): 3-31
  17. Helmke, G. and Levitsky, S. 2004. ‘Informal Institutions and Comparative Politics: A Research Agenda,’ Perspectives on Politics 2(4): 725-40
  18. North, D. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.
  19. Feige, E. 1999. ‘Underground Economies in Transition: Non-compliance and Institutional Change,’ in E.L. Feige and K. Ott (eds), Underground Economies in Transition: Unrecorded Activity, Tax Evasion, Corruption and Organized Crime. Aldershot: Ashgate: 142-65
  20. Williams, C., Shahid, M. and Martinez, A. 2016. ‘Determinants of the Level of Informality of Informal Micro-Enterprises: Some Evidence from the city of Lahore, Pakistan,’ World Development http://dx.doi.org/10.1016/j.worlddev.2015.09.003
  21. Williams, C., Franic, J. and Dzhekova, R. 2014. ‘Explaining and Tackling the Undeclared Economy in Bulgaria: An Institutional Asymmetry Perspective,’ The South-East European Journal of Economics and Business 9(2): 33-45
  22. Williams, C., Horodnic, I. and Windebank, J. 2015. ‘Explaining Participation in the Informal Economy: An Institutional Incongruence Perspective,’ International Sociology 30(3): 294-313
  23. Cummings, R. et al. 2009. ‘Tax morale affects tax compliance: Evidence from surveys and an artefactual field experiment,’ Journal of Economic Behavior & Organization 70: 447–57
  24. Torgler, B. 2007. Tax Compliance and Morale: A Theoretical and Empirical Analysis. Cheltenham: Edward Elgar
  25. Williams, C. and Horodnic, I. 2016a. ‘Cross-Country Variations in the Participation of Small Businesses in the Informal Economy: An Institutional Asymmetry Perspective,’ Journal of Small Business and Enterprise Development 23(1): 3–24
  26. Williams, C. and Horodnic, I. 2015a. Evaluating the Prevalence of the Undeclared Economy in Central and Eastern Europe: An Institutional Asymmetry Perspective, European Journal of Industrial Relations 21(4): 389-406
  27. Williams, C. and Horodnic, I. 2015b. ‘Explaining and Tackling the Shadow Economy in Estonia, Latvia and Lithuania: A Tax Morale Approach,’ Journal of Baltic Economics 15(2): 81-98
  28. Williams, C. and Horodnic, I. 2015c. ‘Explaining the Prevalence of the Informal Economy in the Baltics: An Institutional Asymmetry Perspective,’ European Spatial Research and Policy 22(2): 127-44
  29. Williams, C. and Franic, J. 2015. ‘Tackling the Propensity towards Undeclared Work: Some Policy Lessons from Croatia,’ The South East European Journal of Economics and Business 10(1): 18-31
  30. Williams, C. and Horodnic, I. 2015d. ‘Explaining the Prevalence of Illegitimate Wage Practices in Southern Europe: An Institutional Analysis,’ South European Society and Politics 20(2): 203-21
  31. Williams, C. and Horodnic, I. forthcoming 2016b. ‘An Institutional Theory of the Informal Economy: Some Lessons from the United Kingdom,’ International Journal of Social Economics
  32. Williams, C. and Horodnic, I. 2015a. Evaluating the Prevalence of the Undeclared Economy in Central and Eastern Europe: An Institutional Asymmetry Perspective, European Journal of Industrial Relations 21(4): 389-406
  33. Williams, C. and Horodnic, I. 2015b. ‘Explaining and Tackling the Shadow Economy in Estonia, Latvia and Lithuania: A Tax Morale Approach,’ Journal of Baltic Economics 15(2): 81-98
  34. Williams, C. and Horodnic, I. 2015c. ‘Explaining the Prevalence of the Informal Economy in the Baltics: An Institutional Asymmetry Perspective,’ European Spatial Research and Policy 22(2): 127-44
  35. Williams, C. and Horodnic, I. 2016a. ‘Cross-Country Variations in the Participation of Small Businesses in the Informal Economy: An Institutional Asymmetry Perspective,’ Journal of Small Business and Enterprise Development 23(1): 3–24
  36. Williams, C. and Horodnic, I. forthcoming 2016b. ‘An Institutional Theory of the Informal Economy: Some Lessons from the United Kingdom,’ International Journal of Social Economics
  37. Williams, C. 2014a. ‘Public Policy Approaches Towards the Undeclared Economy in European Countries: A Critical Overview,’ European Labour Law Journal 5(2): 132-55
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