The Chancellor, Gordon Brown, will ban accountancy firms from selling tax avoidance schemes to their clients until they have been approved by the Treasury.
The proposals are likely to be criticised as a new form of stealth tax, imposed by a Chancellor facing a £37 billion budget deficit. But Mr Brown believes there is a difference between legitimate tax planning and avoidance as practised on an increasing scale in the City.
While tax evasion is illegal, there is nothing to stop accountancy firms developing imaginative tax avoidance schemes and marketing them to clients.
It often takes the Inland Revenue some time to identify schemes in operation. If it decides that a loophole is being exploited, the Treasury has to go to court or change the law to close the scheme.
On Wednesday the Chancellor will announce new rules, based on the so-called “disclosure requirement” that operates in the United States. Accountants will have to clear their tax avoidance schemes with the Treasury before they are allowed to deploy them.
Mr Brown is not expected to produce an estimate for the likely savings. But insiders believe the eventual figure will run into billions.
According to City estimates, tax avoidance costs the Exchequer about £13 billion a year, with VAT schemes alone costing up to £3 billion.
Tax avoidance is turning into a Labour bogeyman in part because Mr Brown is scrambling to raise as much revenue as possible without increasing headline tax rates.