By Ollie Stone-Lee BBC News Online political staff

Undeclared work can be vital for some people in deprived areas, says the study

Focusing on tax evasion has meant the benefits of "off the books" employment, and unpaid work for others, have been ignored, the academics' study says.

Experts from Leicester and Middlesex universities, say untaxed earnings are a "cornerstone" of how some cope.

The government stresses it does not want more tax evasion or illegal work.

Instead, it wants to encourage more people into formal work.

The academics' full findings are not expected to be published until the autumn.

Prostitution

The informal economy has risen up the political agenda in recent years, with Lord Grabiner's report for the Treasury in 2000 estimating it could be worth billions of pounds.

The cockle pickers' tragedy at Morecambe Bay put the spotlight on the work of gang masters.

POTENTIAL AREAS FOR FUTURE POLICY DEVELOPMENT More schemes to coax black economy workers to declare work Higher threshold for basic income tax License brothels Cut tax on cigarettes and alcohol in a move on trafficking Make it easier for refugees and asylum seekers to take up formal jobs "Time banks", where people donate their time giving services in return for "credits" to buy services or products from other bank members Adding subjects like cooking, DIY and clothes making to the national curriculum so people can do things for themselves

The informal economy includes work which may be legal but which is kept secret from the tax and benefit agencies, or employment in illegal trades such as drugs and prostitution.

But the authors of the latest research say it also covers mutual aid work, as well as unpaid household chores done mostly by women in their own homes.

Stephen Syrett and Mel Evans, from Middlesex University, and Leicester University's Colin Williams, have examined the issue for the Office of the Deputy Prime Minister (ODPM).

Their full findings will not be published until the autumn. But they were spelled out by Dr Syrett and Dr Evans in a paper for a recent conference.

Their paper, seen by BBC News Online, reflects the two academics' own ideas, not those of the OPDM. The study is designed to give ministers evidence for debate about possible future policies.

Balancing act

Dr Syrett and Dr Evans say the current overriding aim of government policy in the area is eradicating benefit fraud and tax evasion.

Some parts of the black market can drain government resources, create unfair competition and possibly keep wage rates low, they acknowledge.

But the paper says: "For deprived area other aspects of informal economic activity constitute a major resource in areas where resources are in short supply.

The study does highlight the dangers of black market trading

"Given that there are clearly both negative and positive aspects of informal economic activity, the challenge is whether and how to build upon the positive elements in such a way that complements efforts to tackle the negative aspects."

For some residents of deprived areas, the small amounts of cash earned from untaxed independent jobs, rather than "on the side" work for established companies, are a "cornerstone" of how people cope.

Previous studies have also suggested that while black market work in affluent areas is done purely to make money, in poorer districts people may only get paid so their help for their neighbours does not look like charity.

Other schemes might help people get new skills, promote active citizenship or make those living in deprived neighbourhoods better able to cope.

Risks

The study authors argue the informal economy is not going to go away with modernisation as originally thought and they say if managed in the right way it can enhance flexibility in the labour force.

They highlight the potential dangers of recognising and encouraging parts of the black market and the need to constrain them and punish miscreants.

The possible risks include undercutting wages in other paid work and leaving many workers in short-term employment with too few employment rights.

The issue is sensitive for the government, which currently promotes a tough line on tax and benefit cheats through public advertising.

Any moves to slacken rules on asylum seeker working, prostitution or drugs would be likely to prove controversial.

'Helping legitimate work'

A spokeswoman for the Office of the Deputy Prime Minister told BBC News Online: "The government is not encouraging tax evasion or an expansion of illegal work.

"We are keen to encourage people currently working in the informal economy to move into the formal economy.

"The report was commissioned so that we could better understand reasons for working in the informal economy and the barriers to moving into the formal economy.