Michael, 29, is a builder who lives in Manchester. He works as a casual sub-contractor, earning pounds 100-200 a week. He cashes a fortnightly dole cheque at the post office, and claims housing benefit, which pays the rent for his flat.

"I don't have a bank account - none of the builders I know do. All the people I work for know the deal. They expect to pay cash, and they're fine when I have to get off to sign on. Everyone does it. I couldn't afford to get paid through the books. You never know how much you're going earn from one week to the next. To be honest, I don't really think about it. I just sign on.

If I go to a supermarket, it's Aldi, and they just do cash. Stuff for the flat I've mostly got off mates. I got quite a bit of the furniture from second-hand shops round here - that's all done by cash.

I've never had savings. Sometimes I've got a load of money, and sometimes I haven't. If I get into bother, I can always borrow off mates. We always owe each other money, it's a sort of running thing. My girlfriend's dead good, she helps out if I get stuck.

Sometimes I get private bits of work - clients I meet when I'm working with a firm want something little doing later. They always want to pay cash. I get materials cheaper at the merchants with cash. I used to go out clubbing, and obviously you don't buy drugs with a cheque book.

Sometimes I think if I was going to settle down with someone, I might have to go by the book a bit more. But none of the lads on site do, and they seem to manage."

Simon, 38, and a business partner run a record shop in London. The majority of all business transactions are made in cash.

"It's a shopkeeper's instinct. We just prefer to take cash - it feels better, it's more liquid, we can spend it how we want. Obviously, if you are taking cash, you are reducing your official take and you pay less VAT.

We buy a lot of our stock from America, so that has to be in cash. Like any business of our size, we pay certain people in cash.

I was taught basic things when I took the shop over, and one was that you always give a discount for cash, and never for credit cards. There are certain traditions when you are dealing with second-hand goods too: you don't ask for a discount for cash at Tesco's, but you do here. People expect it.

My accountant says, don't mess about more than 10 per cent. The authorities have clever ways of finding out. They'll look at how many carrier bags you're ordering to see how much business you're doing.

People say I shouldn't carry so much money around. I always count it on the kitchen table, and if I get really drunk I come in to breakfast and my kid will be eating a bowl of cereal next to three grand. But you feel better with it. I've got a builder at home who started work today, and I was able to look him in the eye and say the magic word so he could knock the VAT off."

Laura, 51, a market researcher, lives in Weybridge, Surrey, with her husband and children. Their financial arrangements regarding income are conventional, but the cash economy is still an important part of their lives.

"Only last week, we stayed at a hotel in the country. It's run by a guy we've become friends with, and we pay cash. Obviously it benefits him, and we get a better room.

We've got some workmen in, and they asked for cash. I thought that was fair enough, though I don't suppose Peter Lilley would agree. We used to have nannies and au pairs, and we paid all of them in cash. I've a couple of students living in the house, and they pay me cash too - it wouldn't be financially viable if we declared it - and then I use that money to pay the cleaner.

I suppose it's frightfully naughty. Ultimately, I approve of income tax, but there it is. It's a way of making your money stretch. This government wastes 90 per cent of what we give it anyway.

I want to live a life that gives me some breaks. I see this small-scale cash economy as enabling this. I work for a charity which pays me a pittance, so I see that as giving something back. I don't really think of the black economy as something to do with me. I see it as people who are moonlighting. But then, of course, I'm allowing them to. The cash economy is the middle class making life a bit better."