The changes will end the practice of employers using gratuities and service charges processed through payroll to top up staff wages to meet the £5.52 per hour NMW, which rises to £5.73 on 1 October.

Business Secretary, John Hutton, also revealed proposals for making tipping practices fairer and emphasised the importance of improving transparency. He called on employers to make it clear how tips were distributed so that customers knew where their money was going and whether or not the establishment operated a fair tipping policy.

"Hundreds of thousands of people in the UK have jobs in sectors where tipping is commonplace. When people leave a tip, in a restaurant or elsewhere, they expect it to go to service staff and as consumers, we've got a right to know if that actually happens".

Unions have welcomed the move, saying that not allowing employees to have tips in addition to pay is an "abuse".

"Waiters and waitresses across the country have been hungry for the tips loophole to be closed and the announcement will satisfy their appetites", said Derek Simpson, joint leader of the Unite union.

"It is great news that unscrupulous employers will no longer be able to use the tips left for staff to subsidise low wages".

The union intends to introduce a Fair Tips logo in bars and restaurants across the UK – showing that staff receive at least the NMW as well as all tips.

The Government and unions also proposed extending the NMW to 21-year-olds; currently an individual's 22nd birthday is the trigger for entitlement.