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Vive la black market! One in three French people say they have earned undeclared income this year

Anne Penketh reports on resourceful ways to dodge VAT

When Katell, a French estate agent, had a false ceiling constructed in her house in the Breton town of Quimper, she paid cash for the week's work. And when Catherine, a teacher, had to spend €400 on her La Rochelle apartment, she paid cash.

They were not alone. A potent combination of rising unemployment and VAT rates has given a huge boost to France's black economy. One in three French people say they have earned undeclared income this year, compared with only 13 per cent five years ago, according to a survey published last week by Le Figaro.

Half of France's babysitters and teaching assistants, a third of domestic cleaners and 42 per cent of carers for the elderly are working for money paid "under the table", said the report commissioned by O2, France's biggest home services agency.

Of the 1,028 people surveyed, 20 per cent had recourse to the "grey" economy, in which they would pay partly in cash for services.

That figure could go still higher when VAT goes from 7 per cent to 10 per cent on New Year's Day, according to Charles Dauman, the general manager of Shiva Corporation, which specialises in remote access. Other VAT hikes will see a similar jump in restaurant food at the beginning of next year, and a rise from 7 per cent to 20 per cent in VAT to be charged by riding stables. That prospect brought horses and ponies with their owners out on to the streets across France last week in protest.

"Who wants to pay 19 per cent in VAT?" said Katell, referring to the top rate of 19.6 per cent levied on construction work until the end of this year. She said that the two young Frenchmen who repaired her ceiling were moonlighting to supplement their low-paid jobs.

But the increase in clandestine work has led to a comparable drop in tax revenue and in social contributions, affecting state resources as well as individuals' medical and retirement cover. The agency responsible for collecting social security payments, URSSAF, has seen contributions declared by individual employers dip by 8 percent this year. The Association of Individual Employers says the number of such people on its books has declined by only 1 to 2 per cent. This suggests that French households are declaring fewer hours by the cleaners or babysitters whom they employ, and paying the rest in cash.

French authorities have taken measures to prevent earnings going underground, particularly in the construction industry, whose foreign workers are regularly monitored. Banks require customers to fill out forms identifying contractors if a sum of more than €3,000 is involved. According to an investigation by the French economics programme Capital, the restaurant sector is where undeclared income is highest.

The survey for O2 said that a reduction in tax perks for home services has added 12 per cent in costs to the customer over the past two years. However, French households can still claim tax credits for employing home help.

Guillaume Richard, the CEO of O2, said that the black economy had become his company's "worst enemy" with workers preferring to accept cash for part or all of the services provided. He told Le Figaro he is launching a campaign highlighting the "disastrous social and economic impact" of such practices. "Declaring home services is also an act of citizenry," he added.