Gauke under fire over cash comments

A Treasury minister who said it was "morally wrong" for householders to pay tradesmen in cash for a discount has come under fire from a body representing plumbers, builders and electricians.

Exchequer Secretary David Gauke sparked controversy after accusing homeowners who give workers cash of helping them avoid tax. He said: "Getting a discount with your plumber by paying cash in hand is something that is a big cost to the Revenue and means others have to pay more in tax.

"I think it is morally wrong. It is illegal for the plumber but it is pretty implicit in those circumstances that there is a reason why there is a discount for cash. That is a large part of the hidden economy."

The Government loses about £2 billion each year to the black economy as tradesmen fail to pay VAT or income tax by not declaring payments and keeping them "off the books".

Mr Gauke's comments, reported in The Daily Telegraph, come as HM Revenue and Customs plans an amnesty to encourage workmen to pay their fair share of tax.

Tariq Dag Khan, from the tradesmen recommendation website Rated People, said: "The reality is that there is little or no alternative to cash payments for many tradesmen, and criticising the whole industry belies a misunderstanding of the situation many customers and tradesmen are in. There is a great deal of trust involved when hiring a tradesman for both the tradesman and the customer and therefore cheque payments do not provide a viable alternative especially when, if the cheque bounces, the tradesmen could be dangerously out of pocket and in some circumstances forced out of business as a result."

Labour leader Ed Miliband, on a visit to Paris to meet French president Francois Hollande, waded into the row, saying ministers should be focusing on large-scale tax avoidance.

TaxPayers' Alliance political director Jonathan Isaby called on ministers to simplify the complex tax system, adding: "Many people in the squeezed middle feel that benefit fraudsters can get away with ripping off the taxpayer on the one hand, while those fortunate enough to afford crafty accountants and expensive lawyers can dodge their taxes via legal loopholes on the other."

A spokesman for MasterCard said research showed paying by card rather than cash would cut the black economy and bring "significant benefits to small businesses". He added: "The research found that a 5% increase in electronic transactions in place of cash could bring an additional £1.7 billion to the Exchequer."

Asked by ITV news whether he had ever paid anyone cash in hand, Business Secretary Vince Cable said: "Of course. It is perfectly legal and perfectly moral, providing you are not doing it with the objective of avoiding tax and I certainly wouldn't do that."