Estimates of the value of the informal or ‘grey’ economy vary depending on the source, but it is widely accepted as being one of the fastest growing sectors is the UK, aided by a mix of traditional and technologically enabled methods.

Reported business (or carousel) fraud accounts for around £1.4bn each year, although recent research has suggested that only 15% of companies who are the victims of this crime actually report. If this is true then the actual loss to the economy would be closer £9bn.

There has been some debate as to whether the North East is over represented in the informal sector or not. Whilst informal business arrangements do create inefficiencies in an economy, they can also be a source of entrepreneurial activity. Research suggests that an unwillingness to pay tax is not the primary reason for companies to operate informally; instead many of the problems are associated with a lack of skills and understanding of the system. Many argue that overly complex central systems have alienated large groups of individuals who feel they lack the basic skills to meet the accounting and legal requirements of running a business. In addition those who do wish to formalise their activities are worried that they may be punished retrospectively on the earnings they accrued whilst operating outside of the tax regime. If regional policy can successfully transfer these people into the formal economy the North East may receive a significant boost to GVA.

The growing number of consumer-to-consumer transactions, facilitated by auction sites such as Ebay, has given rise to another aspect of the informal economy. Earnings from online selling is rarely declared as it often accounts for a very small percentage of household income, however the market as a whole is substantial. Ebay alone reported that the GMV (gross merchandise value) of all products sold in 2006 was $52.5bn (£25.7bn). As more and more people embrace this new way of consuming and generating income, the greater the issue will become.

Fact File

• The UK informal economy is estimated to be worth anything from £53bn to £137bn each year, employing anywhere between 1.4m and 3.6m people.

• Fraud and staff errors in Income Support and Jobseeker's Allowance benefits cost £1.3 billion last year, according to a report by the government's public spending watchdog. According to the National Audit Office, the cash amounts to 8.4% of the £15.6 billion spent by the Social Security Department-or £1 in every £12.

• Ebay already has over 210m users registered worldwide (there are only around 1.5bn internet users in the worldwide).

• Ebay visitors average 1 hour 54 minutes on the site and view 280 pages per month (Nielsen/Netratings July 2005).

• People in the UK, as is true with Germany, spend more time in Ebay than any other website (Nielsen/Netratings, April 2005). EBay UK accounts for 10% of all the time UK users spend on the internet (Nielsen/Netratings, April 2005).