Paper money and the hidden economy

Governments are looking to cut down on paper cash

 

Not many builders accept credit cards - for some reason they really don't like having all those receipts lying around. It isn't just the super-rich who are causing HMRC problems with their tax avoidance strategies. The so-called "hidden economy" is an equally big problem for governments across the world. And it is that untraceable folding money that enables it.

As such, governments with the biggest economic problems are increasingly looking to cut cash in circulation and encourage the use of electronic payments.

In Italy tax evasion is estimated to be 22 per cent of GDP. Part of Mario Monti's economic reforms agenda has been designed to reduce the amount of cash in system by increasing the volume of electronic payments made at the point of sale. In practice, this means imposing a cap on merchant service fees - the processing charges retailers are required to pay on card transactions. The more people use electronic payment methods, the harder it is to hide from the tax man.

The Italian government hopes to win the support of the retailers in encouraging consumers to use their cards more regularly. Winning that support is not easy - retailers like cash in their pockets like everyone else. That is why many smaller retailers still impose minimum spends for customers wishing to use their cards. But the advent of contactless payments is changing that, and in the UK, many high-volume, low value retailers (like cafes) are now encouraging people to "tap and go", even for purchases of £1 or £2.

Some governments around the world have their work cut out in the war on cash, even by Italian standards.

For the banking and payments sector Nigeria is one of the world's biggest boom markets. Debit cards and electronic payments are big business out there as the government faces the seemingly impossible task of cracking down on corruption.

This is certainly a difficult task in a country that runs on brown envelope deals, and has a reputation as a breeding ground for internet scammers. But no-one can accuse the government of half measures. The Central Bank of Nigeria is seemingly unphased and unstoppable. Arrests of senior bankers is a regular and high-profile. And unlike the Italians, they aren't interested in incentivising people to move to electronic payments methods. Their methods are altogether more direct, replacing the carrot with the stick Huge penalties are being levied on cash withdrawals of over NGN150,000 (£600) at ATMs. Businesses accepting cash payments of more than NGN 1m (£4,000) are being charged 20 per cent for the privilege. The initial results have been mixed, but what is certain is that Nigeria's government is fighting fire with fire.

 

 

Paper money: up for destruction? Getty images

James Ratcliff is Group Editor of  Cards and Payments at VRL Financial News.

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Could Jeremy Corbyn still be excluded from the leadership race? The High Court will rule today

Labour donor Michael Foster has applied for a judgement. 

If you thought Labour's National Executive Committee's decision to let Jeremy Corbyn automatically run again for leader was the end of it, think again. 

Today, the High Court will decide whether the NEC made the right judgement - or if Corbyn should have been forced to seek nominations from 51 MPs, which would effectively block him from the ballot.

The legal challenge is brought by Michael Foster, a Labour donor and former parliamentary candidate. Corbyn is listed as one of the defendants.

Before the NEC decision, both Corbyn's team and the rebel MPs sought legal advice.

Foster has maintained he is simply seeking the views of experts. 

Nevertheless, he has clashed with Corbyn before. He heckled the Labour leader, whose party has been racked with anti-Semitism scandals, at a Labour Friends of Israel event in September 2015, where he demanded: "Say the word Israel."

But should the judge decide in favour of Foster, would the Labour leadership challenge really be over?

Dr Peter Catterall, a reader in history at Westminster University and a specialist in opposition studies, doesn't think so. He said: "The Labour party is a private institution, so unless they are actually breaking the law, it seems to me it is about how you interpret the rules of the party."

Corbyn's bid to be personally mentioned on the ballot paper was a smart move, he said, and the High Court's decision is unlikely to heal wounds.

 "You have to ask yourself, what is the point of doing this? What does success look like?" he said. "Will it simply reinforce the idea that Mr Corbyn is being made a martyr by people who are out to get him?"