The Business Secretary, John Hutton, will announce today that restaurants will no longer be allowed to pay below the minimum wage of £5.52 per hour and make up the difference using tips and service charges.
In a landmark victory for The Independent's "fair tips, fair pay" campaign, the changes will stop some of Britain's biggest restaurant chains exploiting the loophole in minimum wage legislation. After a consultation this autumn, the Government will introduce legislation closing the loophole next year, to coincide with the 10th anniversary of the national minimum wage law.
Mr Hutton said: "When people leave a tip they expect it to go to service staff and, as consumers, we've got a right to know if that actually happens."
"This is an issue of fairness and common sense and it's one many people clearly care a lot about. The changes we're proposing will mean that, in the future, tips cannot count towards payment of the minimum wage.
"We also want to encourage employers to make it clear how tips are distributed so that customers know where their money is going and whether or not the establishment operates a fair tipping policy."
Campaigners pointed out the announcement stopped short of a commitment to force restaurants to clearly state their policies on whether tips go to the restaurant or waiting staff.
Several restaurants investigated by The Independent will have to change the way they pay staff. Chains including Café Rouge, Strada and Caffè Uno use service charges to "top up" to minimum wage, which will rise to £5.73 per hour for adults aged over 21 in October. In one case, Tuttons, a restaurant in Covent Garden, London, admitted it used only its 15 per cent "discretionary service charge" to pay staff, who received a basic wage of zero pounds.
Dave Turnbull, the industrial organiser at the union Unite, said: "It's what we've been pushing for and is definitely a major step forwards. It breaks down the barrier we had in the past where restaurants said what they were doing is perfectly legal so they could do what they wanted." Paul Kenny, general secretary of the GMB union, added: "Far too many rogue employers have been using tips to make up the minimum wage. The quicker this is ended completely, the better."
A former waiter at the Paternoster Chop House, a London restaurant owned by D&D London (formerly Conran Restaurants), who resigned when he learned his basic wage would be £1.88 an hour, called the news "fantastic". He added: "If The Independent's campaign is going to make a difference to people so they get the minimum wage plus a share of the tips then that's good for everybody. Customers will know their waiter is being paid a fair wage and will be rewarded for good service."
Bob Cotton, the chief executive of the British Hospitality Association, said the proposals needed more consideration. "At present, they have a potentially highly unfavourable impact on pay for staff," he said. "The only person to gain will be the tax man."