Joint Shadow Economy Teams, United Kingdom
To facilitate greater cooperation at operational level across government departments, the ‘Grabiner Steering Group’ established Joint Shadow Economy Teams (JoSETs) in April 2001. These locally-based teams brought together officers from the Department for Work and Pensions (DWP), Her Majesty’s Revenue and Customs (HMRC) and the employment agency Jobcentre Plus to tackle undeclared work regarding workers and employers in four priority areas of economic activity, including construction and building services; the operation of taxis and couriers; catering; and hotels and guest houses.
In 2000, a review of the UK government’s strategy in tackling undeclared work identified the lack of joined-up operations across central government departments as a potential problem (Grabiner, 2000). To facilitate greater cooperation at operational level across these government departments, the ‘Grabiner Steering Group’ (now renamed the Informal Economy Strategy Group) established Joint Shadow Economy Teams (JoSETs) in April 2001. These locally-based teams brought together officers from the Department for Work and Pensions (DWP), Her Majesty’s Revenue and Customs (HMRC) and the employment agency Jobcentre Plus to tackle undeclared work regarding workers and employers in four priority areas of economic activity.
The four priority areas included: construction and building services, including the occupations of plumbers, painters and glaziers, roofers and joiners, and electricians; the operation of taxis and couriers; catering, including takeaways, licensed restaurants and tenanted public houses; and hotels and guest houses. Two other priority areas were also identified – agriculture and fishing, and the textiles and fashion industry; undeclared work in these activities was addressed through the separate initiatives of the Gangmasters Licensing Authority (GLA) and Joint Fashion Industry Teams (JoFITs).
By March 2001, 200 staff worked jointly in these locally-based teams. The first five JoSETs were located in the towns of Coventry in the West Midlands, Gloucester in the west of England, Derby in the East Midlands, Luton in the south of England and Plymouth in the southwest. Some 15 additional teams were then established in the towns of Swansea in Wales, Glasgow in Scotland, Belfast in Northern Ireland, Widnes in the west of England, Shipley to the north of England, Salford to the northwest of England, Newcastle-upon-Tyne in the northeast of England, Wolverhampton in the West Midlands, Kensington in West London, and Cambridge, Oxford, Chelmsford, Woking, Croydon and Maidstone in the southeast of England.
The 20 JoSETs employed a small number of all UK civil servants involved in combating undeclared work. Her Majesty’s Customs and Excise (HMCE) reported in 2004 that 257 staff worked in JoSETs, of whom some 200 were HMRC civil servants. Given that, in 2006, HMRC employed 91,365 staff in 300 locations and 900 offices, some 0.2% of HMRC staff were therefore employed in these teams tackling undeclared work in a joined-up cross-departmental manner. The programme concluded in 2006.
Through coordinated action at operational level, the scheme aimed to detect traders engaged in undeclared work in economic sectors identified as being at a higher risk of non-compliance.
By applying area-based cross-departmental intelligence and data sharing at an operational level to specific sectors, JoSETs sought to detect:
- ‘unregistered businesses’ – legitimate businesses trading above the value-added tax (VAT) threshold of £64,000 (€86,500 as at 28 January 2008) who deliberately do not register for VAT;
- ‘moonlighters’ – individuals who work formally and pay tax but who have a second hidden job for which they do not pay tax;
- ‘ghosts’ – individuals who are completely unknown to the tax authorities as they do not carry out any formal work and hence do not pay any tax on employment or self-employment income sources, even though they earn a sufficient amount to do so;
- false benefit claimants.
Evaluation and outcome
Achievement of objectives
No detailed value-for-money evaluations have been published regarding whether the inter-departmental JoSETs were more effective and efficient at detecting undeclared work than the non-compliance work conducted within governmental departments acting in isolation. Nevertheless, several attempts have been made to estimate the benefits of JoSETs.
Obstacles and problems
A major problem in terms of the operation of JoSETs was that, although a single management existed, the individual civil servants employed in each team had separate performance measurement systems and pay structures. DWP officers were measured by the number of false benefit claims detected, while HMRC officers were measured by the amount of additional direct and indirect tax secured. Although the JoSET statement of measures emphasised the joint contribution to targets, the objectives therefore remained essentially separate for each of the departments involved in these joint operations.
JoSETs demonstrated the potential gains to be made by sharing information and intelligence, as well as by taking a common joined-up approach to areas of shared risk. The co-location of officers from different departments in area-based teams resulted in them working around problems such as incompatible information technology (IT) issues. The scheme showed that it is wholly possible for officers combating undeclared work to move out of their departments and to work together at an operational level on an area-by-area basis targeting specific sectors.
- In 2002–2003, JoSETs secured 3,633 VAT registrations and, according to evidence submitted to HM Treasury (2004, p. 12), additional revenue of £65 million (€87.5 million). According to HMCE (2003, p. 22), however, this same period where JoSETs secured 3,633 VAT registrations with Departmental arrears totalling £24.8 million (€33.5 million), also produced a direct tax yield of £2.14 million (€2.9 million), identified 245 ‘ghosts’ and saved £750,000 (€1 million) in benefit overpayments from 431 overpayments. This resulted in 94 sanctions totalling £27.69 million (€37.4 million) in additional revenue, not £65 million as reported to HM Treasury.
- The latter data on benefit overpayments in the period from April 2002 to end March 2003 resonates with data presented to the Select Committee on Public Accounts for the period of April 2002 up to the end of February 2003. These data indicate that DWP officers through JoSETs recorded 93 sanctions, including prosecutions, 335 adjustments to benefit payable, 246 overpayments and five collusive employers. The total value of overpayments was £681,000 (€920,500).
- With no time frame stated, meanwhile, but presumably since JoSETs commenced in April 2001, DWP (2003, p. 41) reported that DWP through JoSETs had applied sanctions in 654 cases, finding 1,632 overpayments and 2,371 adjustments to benefit, which was worth £5 million (€6.75 million).
- In 2003–2004, moreover, DWP (2004) reported that JoSETs brought in direct tax yields of £2.4 million (€3.2 million) along with additional VAT of £26.5 million (€35.8 million). DWP investigators recovered benefits overpaid or terminated false benefit claims amounting to £1.7 million (€2.3 million). In total, therefore, £30.6 million (€41.3 million) additional revenue was secured.
The conclusion of two reports that evaluate the value-for-money of JoSETs find that it was a relatively effective and efficient means of tackling undeclared work compared with non-compliance work in departments acting in isolation.
As the National Audit Office (2003, p. 4) concludes ‘For the Revenue, the initial results of this joint working are promising, indicating a potentially better average return on jointly worked cases, compared with the equivalent enquiry work.’
Meanwhile, DWP (2003, p. 40) – in responding to how the UK had implemented Employment Guideline No. 9 on tackling undeclared work – reported in its UK Employment Action Plan that, in 2001/02, JoSETs achieved 108% of target for new registrations for VAT and the net tax gain from these cases was 184% of expectation. The success (‘strike’) rate per settled case was 12% higher than the average, and the time taken to settle the average case was brought down by 40% compared with the norm. Although failing to state the absolute figures, this nevertheless reveals that JoSETs appear more effective and efficient at combating undeclared work than non-compliance work conducted within individual government departments acting without cooperation.
This scheme, which sought to coordinate the detection work of different government departments, is transferable to other countries where no one government department is wholly responsible for tackling undeclared work. It is also transferable to other sectors and beyond its current local area-based approach to regional and national levels.
Using schemes such as JoSETs to join-up the operations of government departments is perhaps a compromise that can be used in nations where responsibility for combating undeclared work is not concentrated within one government department or agency. Given that less than 0.2% of HMRC officials were employed in JoSETs, however, indicates that this scheme was little more than a token gesture towards joining-up government. This is reinforced by the fact that data on whether this scheme provides value-for-money have been forthcoming only in response to explicit National Audit Office and Select Committee requests. Moreover, when the additional funding released by the Grabiner (2000) report ran out, although they continued to operate for a while, these joined-up operations eventually ceased and compliance work moved back into the departments acting independently of each other.
Main organisation responsible: Her Majesty’s Revenue and Customs (HMRC), Department for Work and Pensions (DWP) and Jobcentre Plus
Department for Work and Pensions, United Kingdom Employment Action Plan: A report on the principal measures undertaken by the UK to implement its employment policy in line with Article 128(3) of the EU Treaty, London, Department for Work and Pensions, 2003.
Department for Work and Pensions, UK National Action Plan for Employment, London, Department for Work and Pensions, 2004.
Grabiner, Lord, The informal economy, London, HM Treasury, 2000.
Her Majesty’s Customs and Excise, Annual report and accounts 2002–03, London, HM Customs and Excise, 2003.
Her Majesty’s Customs and Excise, Tackling VAT fraud, London, The Stationary Office, 2004.
Her Majesty’s Revenue and Customs, Annual report 2004–05 and autumn performance report 2005 HM Revenue and Customs, Cm 6691, London, The Stationary Office, 2005.
Her Majesty’s Treasury, Treasury minutes on the 32nd to the 34th and 36th Reports from the Committee of Public Accounts 2003–04, Cm 6304, London, The Stationary Office, 2004.
National Audit Office, Tackling fraud against the Inland Revenue, London, The Stationary Office, 2003.
Colin C. Williams