When you read this, I will have just returned from a rather gorgeous few days in Madrid. I stayed with nice friends in a house that they neither own, nor rent. So how did they get it? They swapped.
As we meandered around the gardens and wondered if it was too cold for the kids to get in the pool (it wasn’t), the owners of the Madrid house were checking out the restaurants in Kensington and buying overpriced tat on Portobello Road. They stayed in my friends’ London house.
House swapping isn’t new, but the ease with which it can now be done on the internet means it is on the rise. I’ve even looked at the possibilities for my own house (house in Edinburgh during the Festival in exchange for a beach house in Martha’s Vineyard, anyone?)
You might think that as no cash changes hands, this is a purely social phenomenon and therefore of very little interest to this column’s readers. But it isn’t really so.
Look at swapping through the eyes of an accountant or an economist, and you will see that it should eventually have major implications for the ways in which we measure the size of the economy and collect tax.
Swapping your house* is actually a serious money-making event. Let’s say the London house could be rented out as a holiday let for £3,000 a week, and let’s say the same for the Madrid house. The owners of both houses have made an implied tax-free income of £6,000 over their two-week holiday, in that they have received use of an asset to that value in exchange for their own home.
You could say that there isn’t a tax liability for the simple reason that there is an implied loss (moving out of your own house) as well as an implied gain. That may be so, but swaps such as this still represent returns on assets that are – for now – utterly uncaptured in our income and GDP statistics.
But this isn’t the only way that the internet has rendered our measurement methods ineffective. The new world of communications also allows all sorts of people to run part-time second careers. If you have ever read any of the trying stories about female entrepreneurs in ladies’ magazines (“I’m an accountant by day, dress designer by night” and so on), you’ll know what I mean.
Then there are the other ways we can make assets work for us online. What about those websites that let you rent out your driveway to commuters (Parkatmyhouse.com claims to have made its users £5m so far), or mondaytofriday.com, which matches weekday lodgers with part-time landlords?
Then there’s the biggest beast of all, Airbnb.com, which allows all of us to rent out spare rooms as and when we feel like it. The company’s latest fundraising round valued it at $10bn (£5.95bn).
Finally, there are the peer-to-peer lending sites I have written about before – Zopa, Money & Co, and so on. You might think that any income from these somehow gets taxed through the self-assessment system. I suspect that just isn’t so.
For starters, the tax authorities aren’t interested in what they consider ‘minor hobby’ income, so many small streams of income are never picked up. We used to give our old books to church sales; now we sell them via Amazon. We used to give our second-hand clothes to charity; now we sell them on eBay. The same goes for rickety pieces of furniture, old mirrors, curtains and the like. None of this is buying anyone a private jet, but it all adds up.
Renting out a room on Airbnb.com is more material. It is a taxable event. But how many Airbnb.com users fill in self-assessment forms or even know they have to? Then look at Zopa. A good many people use lending sites instead of keeping their cash in a bank account. But how many of them know that it works rather differently for tax purposes?
Bank deposit interest is paid net of tax for basic rate payers (as are dividends). But interest from the likes of Zopa is paid gross. So virtually everyone using it should be filling in a self assessment form. I think I can say with some confidence that they aren’t.
GDP has always been a pretty iffy calculation; endless books have been devoted to its inadequacies. But the rise of the collaborative economy – the sharing economy, the recycling economy or whatever you want to call it – makes GDP even more inaccurate.
I can’t put any statistics on exactly how much inferred income the UK’s home swappers make out of this (although one estimate of the ‘sharing economy‘ put its value to UK consumers at £4.6bn last year), and I can’t put a number on the amount of odd income that comes in to households via eBay and the like. It is also verging on the impossible even to begin to guess at the volume of income in the UK that goes undeclared.
But some light was thrown on all this a few weeks ago with the publication of research from Morgan Stanley on the size of the black economy in the UK. Analysts there reckon that since the crisis kicked off in 2007, it has grown from about 12% of GDP to more like 16%, something that suggests the UK economy as a whole is not smaller than it was in 2007 (as we are constantly being told), but 4% larger.
Look at the new ways technology has given us to make income (and implied income) on the side and I suspect even that may turn out to be an underestimate.
The Spanish know all about that, of course. The ‘unofficial’ economy (and associated tax avoidance) is significant in all the so-called Club Med countries. But this is different.
It’s not about cash-in-hand jobs that circumvent VAT or income tax. It’s about how the science of economics and the business of tax collection hasn’t caught up with the impact of the internet. But just because the authorities haven’t yet figured out how to measure and to tax the ways in which things are getting better, doesn’t mean they aren’t getting better.
* If you are interested in this, LoveHomeSwap.com seems to be the place to go.
• This article was first published in the Financial Times.