Could the only part of the economy that is growing be the UK’s shadow economy?
- Jacob Solon
- Nov 16, 2025
- 4 min read
Untaxed, unregulated, unlawful, yet in clear sight; this is the UK’s shadow economy. Is it growing?
There could be well over a million people, maybe closer to two million workers, roughly 5 in every hundred employed illegally in the UK. These are workers who put in hours of hard work, yet they elect to exchange their conditions and pay to remain in our society’s shadows.
It is a criminal offence for migrants to work illegally in the UK. The Government’s rhetoric states ‘it’s a criminal offence for migrants to work illegally in the UK,’ but in reality, it’s a criminal offence for anyone to work illegally. Labelling illegal work as a migration issue may be why the Government didn’t take preparatory steps before rushing through the minimum wage increase, catching employers off guard with the Job Tax, and now about to impose the Employment Rights Act, which the Treasury’s own analysis estimates will add an extra £5 billion in costs to employment.
Whether by design or mistake, the Government is making it increasingly expensive to employ people legally in the UK. Its actions are incentivising the growth of the shadow economy. The UK’s cash economy acts as a magnet, attracting economic migrants who are willing to work illegally. The demand for cheap, unregulated labour has created a feedback loop: as the informal economy grows, so does the incentive for illegal entry. Official Home Office figures show that 7,130 people were arrested last year on suspicion of illegal work—a 50% increase—but this only scratches the surface. Experts estimate hundreds of thousands are working illegally at any given time. The Migration Observatory at Oxford University and Pew Research Center’s 2017 estimate had the total irregular migrant population living in the UK to be between 0.6 and 1.2 million, the highest in Europe.
Britain’s shadow economy covers a wide range of industries, from unregistered barbers, nail-salons, vape dealers, car washes to food delivery riders, and cash-in-hand trades such as home repairs and unlicensed waste collectors. According to HMRC, the illegal cigarette and vape trade alone costs the UK £2.2 billion in lost tax revenue each year. A BBC investigation revealed asylum seekers working 14-hour shifts for as little as £4 per hour while waiting months or years for case decisions. The same investigation uncovered over 100 barbershops, car washes, and mini-marts linked to organised crime networks from Dundee to Devon, with investigators suggesting the true scale is much larger.
In October 2025, the Home Office carried out its largest operation yet, raiding 2,734 premises, arresting 924 people, seizing £10.7 million, and destroying £2.7 million worth of illegal goods. Over 450 companies were referred to Companies House for investigation. Yet such crackdowns barely scratch the surface; if five in one hundred people are working in the illegal economy, these efforts are not addressing the root problem. At the same time, 49,341 people were detected entering the UK without permission during the year to June 2025, a 27% increase from the previous year, with nearly 90 percent arriving by small boat. The correlation is clear: as the informal economy expands, so does the pull factor for illegal migration.
Britain was once a pioneer in workers’ rights—from the Health and Morals of Apprentices Act 1802 through the Factory Acts and the Employment Rights Act 1996—yet today, millions in the shadow economy have absolutely no rights. This Labour Government, claims to defend workers, seems blind to the emergence of a new, pre-Victorian underclass defined by illegality, exploitation, and invisibility. Enforcement agencies are severely under-resourced. The Home Office Immigration Enforcement budget was approximately £350 million in 2022–23, down more than 25 percent in real terms since 2016, according to the National Audit Office. Local authority regulatory services that handle trading standards, licensing, and labour enforcement have suffered cuts of 25–40 percent and staffing reductions of about 40 percent since 2015, according to the Chartered Trading Standards Institute. Some councils now operate with fewer than one trading standards officer per 100,000 residents, making proactive inspections nearly impossible. Even with recent enforcement efforts—11,000 business visits and 8,000 arrests for illegal work in 2024–25—the government would seem to be reaching less than 1% of those working illegally in Britian today.
The risk of being caught for employing people illegally is minimal, while the rewards of exploiting cheap, undocumented workers is increasing. This creates a growing shadow economy that damages legitimate businesses, depresses wages, erodes the tax base, and continues to drive illegal migration into the UK. Prime Minister Starmer’s proposal for digital ID cards is presented as the silver bullet, but in reality, it risks punishing the wrong people. The proposed national ID system will impose additional compliance burdens on millions of lawful workers and employers, while doing nothing to dismantle the organised criminal networks behind a large proportion of illegal employment.
This Labour Government, possibly feeling threatened by Reform, is failing the law-abiding, hard-working workers who are the backbone of Britain by incentivising the growth of the shadow economy.
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