Bars and restaurants could be banned from adding discretionary service charges to bills, and forced to pay all tips to staff in full, under the terms of a new government consultation.
Business secretary Sajid Javid announced that he was considering writing the current voluntary code of practice into statutory code, as part of measures to stamp-out unfair tipping practices.
Javid said: 'We've been very clear. As a one nation government we want workers who earn a tip to be able to keep it. That's why I, like many others, was disappointed by the tipping practices of some of our well-known chains. This has to change.
'I'm setting out our proposals to make tipping fairer, clamping down on unfair practices and securing a better deal for the millions of workers in the service industry. We will look closely at all the options, including legislation if necessary.'
Proposals under the consultation include: updating the current voluntary code of practice and putting it on a statutory footing to increase employer compliance; increasing transparency for consumers to make it clearer that suggested discretionary payments for service are discretionary; and preventing or limiting any employer deductions, except for tax purposes.
Workers union Unite has been one of the loudest voices in calling for reform since the business secretary ordered an investigation into the abuse of tipping by businesses last August. The group has called for an end to practices such as companies deducting an admin fee for tips paid on cards.
However, the Association of Licensed Multiple Retailers (ALMR), which represents 90% of managed pubs and 7,000 casual dining restaurants, said it had found no abuse of the current system.
ALMR chief executive Kate Nicholls said: 'With the rise of cashless transactions, customers are increasingly rewarding good service through credit card payments. These have to be processed through the company payroll in order to ensure that tax is properly accounted for and paid.
'No company should be profiting from tips and service charges, but equally no company – particularly small businesses – should be penalised for collecting and processing tax on behalf of the government.'
Ufi Ibrahim, chief executive of the British Hospitality Association (BHA), which represents over 40,000 hospitality establishments, said: 'Transparency is precisely what we asked the government to consider. Customers should be able to reward good service and know where their money ends up and how much of it goes to the staff. We believe restaurants should have to provide a written notice explaining exactly what happens to service charges and tips.'
The consultation is set to close on 27 June.