How 'morally wrong' is it to pay cash-in-hand?

(clockwise) Man carrying hard hat; person fixing a radiator; man removing money from wallet; person mopping floor; woman carrying tray of drinks

Paying tradesmen cash in hand to avoid tax is "morally wrong", a Treasury minister has said. Just how ethically dubious is the practice, if at all?

Here's how it goes. The kitchen needs replacing, or the boiler has expired. But money is tight, so you strike a deal with the contractors who pop round to give you a quote.

You settle up with a wad of banknotes and get a discount. They slip the cash into their back pockets, out of sight of the taxman.

Treasury Minister David Gauke has declared that the practice is "morally wrong".

He told the Daily Telegraph that off-the-books arrangements like this meant a shortfall for the Treasury and higher tax bills for other Britons. The black economy is thought to cost the exchequer some £2bn a year.

Hand holding out coins It might be illegal - but is it as bad as trillion-pound avoidance by the super-rich?

In an era of fiscal austerity, with greater attention than ever on the tax arrangements of celebrities like Jimmy Carr it is hardly surprising that the debate has widened.

This, however, raises two immediate dilemmas. Firstly, is tax evasion always equally wrong regardless of the scale involved?

And secondly, does the customer who doesn't ask questions about why he or she is getting a cash discount share moral culpability with the trader who cheats the tax system?

In effect, it's a matter of philosophical contention whether all evasion and avoidance is always bad, or if handing over cash and not asking too many questions is the consumer equivalent of parking on a double-yellow line.

Mr Gauke said cash payments were "facilitating" the hidden economy

A utilitarian might weigh up the evasion according to scale and how it affects the greater good. Others, however, might look to the German philosopher Immanuel Kant's "categorical imperative", which implies that any rule or code must be universally applied if it is to have any moral value.

For Julian Baggini, author of several books on philosophy, breaking the law by knowingly evading tax is always immoral. But this is not to say, he believes, that it is always equally so.

"It's wrong because as a citizen in a democratic society you agree to abide by the same laws," he says. "If you don't like them then you work to change them through the democratic process.

Start Quote

It is morally wrong not to pay tax one is obliged to pay. It is another thing to constrain freedom of transaction”

End Quote Prof Julian Savulescu University of Oxford

"But there are degrees of wrongness and compared to the global scale of tax avoidance this is minor. It's important when you raise something as being wrong to maintain that sense of perspective."

Certainly, on blogs, message boards and social networking sites, some questioned why the minister was focusing on the topic at a time when millions of Britons were struggling to make ends meet - and in the week when a report by the Tax Justice Network suggested the global elite hid at least £13tn ($21tn) in tax havens by the end of 2010.

Some will protest that it is not for a householder, say, to demand to scrutinise their cleaner's annual tax returns.

Julian Savulescu, Uehiro Professor of Practical Ethics at the University of Oxford, says that ultimately, the moral obligation for settling a VAT bill lies with the trader and not the consumer so long as the task is the former's legal responsibility.

"It is morally wrong not to pay tax one is obliged to pay - it is another thing to constrain freedom of transaction," he says.

Builder on a roof Is it up to the tradesperson alone to take responsibility for their tax bill?

"People should be free to ask to pay in cash, or bank transfer or by any method. Those personally concerned to prevent tax evasion could ask to pay in non-cash methods - and those methods should be accepted."

For Baggini, however, that argument is not good enough. Not asking questions, he believes, is as much of a conscious act of omission as failing to settle up with HMRC.

"There is such a thing as culpable ignorance," he counters. "If you choose not to know you are blameworthy of that ignorance."

The minister said there was nothing wrong with paying in cash, but doing so with the purpose of avoiding tax was wrong.

Inevitably, attention quickly turned to the question of whether the minister had always applied his own categorical imperative. He insisted that he had "never said to a tradesman, 'If I pay you cash, can I get a discount?'"

The sentiment was not universal, however. Asked subsequently if he ever had paid in cash to keep costs down, London Mayor Boris Johnson said: "I've certainly paid a lot of cash in hand."

The debate will continue unabated. So too, no doubt, will the practice of settling up with the kitchen fitter or plumber in £20 notes.

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