Britain's shadow economy is now worth £150bn a year – but it is smaller than in most other western nations and last year fell to its lowest level in almost a quarter of a century, according to a report released on Tuesday.
A study by a free-market thinktank, the Institute for Economic Affairs, estimated that paid work not declared to the taxman was worth 10% of national income in 2012, half the level in Italy, Greece and Spain.
The report, by economists Friedrich Schneider and Colin Williams, found that the UK's shadow economy was smaller than the 13.4% average for the 34 developed nations in the Organisation for Economic Cooperation and Development. The UK rate peaked at 13% in 1997-98.
The authors said the most important factor determining the size of the informal economy was the tax and benefits system, and much of the shadow employment in Britain could be blamed on the loss of benefits and tax credits for low-paid workers as they earned more.
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