Black economy is good for business - official

The black economy of tax fiddles and illegal working should be encouraged in deprived areas, a government-commissioned report is to claim.

It will argue that people getting paid for undeclared work can help boost inner-city areas.

The study goes against ministers' determination to cut down on illegal working which is estimated to cost £10billion a year.

The authors want the Government to give today's generation of tax cheats a range of incentives.

The new study will claim the informal economy has become a " cornerstone" of deprived economies such as parts of London and Liverpool and attitudes to it should be re-evaluated. It is being written by academics from Leicester and Middlesex universities and was commissioned by Deputy Prime Minister John Prescott's office.

The authors previewed their findings in a paper for a conference.

They wrote: "For deprived areas aspects of informal economic activity constitute a major resource... the challenge is whether and how to build upon the positive elements in such a way as to complement efforts to tackle the negative aspects." The disadvantage to the black economy, they admit, is that it can bear down on wages and involve unsafe practices. The authors condemn organised illicit working and do not support untaxed working in affluent areas or by employees moonlighting.

The study will claim that small amounts of untaxed income from part-time cash-in-hand jobs are a vital prop for poorer communities.

The authors propose raising the basic income tax threshold to free more people on modest earnings from the tax system, cutting tax on cigarettes to reduce the rewards for smugglers and establishing "time banks" where people can barter their skills without cash being involved.