A Treasury minister who said it was “morally wrong” for householders to pay tradesmen in cash for a discount came under fire today from a body representing plumbers, builders and electricians.
Exchequer Secretary David Gauke sparked controversy after accusing homeowners who give workers cash of helping them avoid tax.
He said: "Getting a discount with your plumber by paying cash in hand is something that is a big cost to the Revenue and means others have to pay more in tax.
"I think it is morally wrong. It is illegal for the plumber but it is pretty implicit in those circumstances that there is a reason why there is a discount for cash.
"That is a large part of the hidden economy."
The Government loses about £2 billion each year to the black economy as tradesmen fail to pay VAT or income tax by not declaring payments and keeping them "off the books".
Mr Gauke's comments, reported in The Daily Telegraph, come as HM Revenue and Customs plans an amnesty to encourage workmen to pay their fair share of tax.
Mr Gauke told BBC2's Newsnight some Tory ministers may have previously paid workers in cash, but denied doing so himself.
"I've never said to a tradesman, 'If I pay you cash, can I get a discount?'," he said.
But asked if colleagues had, he replied: "I don't know, but if people do do that they have to do so with the recognition that means taxes will be higher for the rest."
Tariq Dag Khan, from the tradesmen recommendation website Rated People, said today: "David Gauke's comments that it is morally wrong to pay tradesmen in cash do little to help tradesmen who are struggling in a difficult economic climate.
"The reality is that there is little or no alternative to cash payments for many tradesmen, and criticising the whole industry belies a misunderstanding of the situation many customers and tradesmen are in.
"There is a great deal of trust involved when hiring a tradesman for both the tradesman and the customer and therefore cheque payments do not provide a viable alternative especially when, if the cheque bounces, the tradesmen could be dangerously out of pocket and in some circumstances forced out of business as a result."
Labour leader Ed Miliband, on a visit to Paris to meet French president Francois Hollande, waded into the row, saying ministers should be focusing on large-scale tax avoidance.
Asked whether paying cash in hand was "morally wrong", Mr Miliband said: "What I say is that the job of government is to pass the right laws to clamp down on tax avoidance - that's the most important thing of all.
"What I will be saying to the Government is that they should be clamping down on the large-scale tax avoidance which has been revealed in the past few days and I think that's what people want to see from the Government."
TaxPayers' Alliance political director Jonathan Isaby called on ministers to simplify the complex tax system.
He said: "Many people in the squeezed middle feel that benefit fraudsters can get away with ripping off the taxpayer on the one hand, while those fortunate enough to afford crafty accountants and expensive lawyers can dodge their taxes via legal loopholes on the other.
"As long as this is the case, they will find it hypocritical for ministers to lecture them about paying cash in hand.
"While it is wrong to pay cash in hand, tackling the small scale tax evasion that costs the Exchequer so much each year will only be possible when people trust that everyone pays no more, and no less, than their fair share.
"The Government should focus on making our taxes simple, affordable and fair, instead of sitting in judgment on people."