Historical perspective

It seems that as soon as taxation was introduced someone tried to evade it. Originally taxation took the form of a tithe and it is said that if the record of animals and produce in the Doomsday Book was accurate the populace would have been starving to death!

For centuries Britain shied away from direct taxation because idea of disclosing income was resented. The first Income Tax as we know it was introduced as a temporary tax to help finance the Napoleonic wars. Evasion of tax by claiming excessive allowances became so prevalent that a drastic overhaul of all types of deductions was effected. In fact the exemption limit had to be reduced below £60, for it had been found that too many persons had been falsely returning a lower level of income. The official government explanation for this was that: "It is notorious that persons living in easy circumstances, nay even in apparent affluence, have returned their incomes at just under £60, though their annual expenditure has been treble that sum and on whom there was no ground for imputing extravagance . . . the income of whole parishes was swept away by this fraud."

Fraud and evasion were a major concern of a 1920 Royal Commission, which reported that the loss of revenue was so large that the powers of the Crown needed to be much enlarged.

Geographical Perspective & Magnitude

Obviously nobody really knows the size of the Black Economy. In Russia it is believed to be about the same size as the White economy. In Italy, Greece and Spain it is thought to amount to 20% - 30% of their Gross Domestic Product (GDP). In Germany the level is said to be 10% of GDP, whereas in the USA the Black Economy is estimated to be 8% to 10%. The Inland Revenue suggests that the UK’s Black Economy is of the order 6% to 8% of GDP. To put this into perspective that's roughly twice the size of the Defence budget!

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