Brown targets black economy

Cash in hand: Action against tax and benefit fraud

Chancellor Gordon Brown is to introduce a US-style "two strikes and you're out" system of stopping benefits in an assault on the black economy.

The measures are one of the key recommendations of the inquiry by Labour peer, Lord Grabiner QC into the estimated £80bn-a-year black economy.

Measures to withdraw benefits for a specified period for those twice-convicted of fraud will be introduced as part of Mr Brown's budget on 21 March.

Lord Grabiner's inquiry calculated that almost £500m has been lost to the taxpayer alone in benefits paid out to the estimated 120,000 claimants believed to be working while signing on.

The report also recommended:

Making suspected black economy workers sign on more frequently and at unpredictable times.

Creating a criminal offence of fraudulent evasion of income tax.

Strengthening Inland Revenue powers to investigate suspected businesses operated by phone from home.

The new offence would be triable in a magistrates' court, thus avoiding restrictions which currently mean only major cases of evasion are prosecuted.

The report also suggests setting up a confidential telephone hotline offering advice to those in the black economy on how to "go straight".

'Missed targets'

Mr Brown said: "For years, billions of pounds have been lost to the informal economy every year, leaving honest, hard-working taxpayers footing the bill for those who either don't pay the taxes they owe or claim benefit while they are working.

"Defrauding the benefit system means defrauding the poor and preventing us getting the resources to those in need.

"We would be failing in our obligation to those who need the benefits system if we allowed people to defraud it."

People were evading tax, businesses were illegally employing people and there were benefit cheats, Mr Brown told BBC Radio 4's Today programme.

"The difference between the 1980s and now is that in the 1980s there were no opportunities, less vacancies," he said.

"We're giving people every opportunity, helping them with training, helping them with child care, we are helping people with the transitional costs of getting back into work."

The chancellor said that a goal of full employment would prove impossible to reach so long as there were people claiming benefits while working.

"But we have also got to provide people with the incentives to get back into the real economy," he added.

"Many people have drifted into this but it's time that they made the decision to get out of it."

Shadow chancellor Michael Portillo backed the measures to reduce benefit fraud, but accused the government of having missed its targets for combating welfare fraud every year since it came to office.