Shadow chancellor Ed Balls said that while the party supported the General Anti-Abuse Rule (GAAR), it was ‘currently a GAAR without teeth’ and pledged Labour’s commitment to a tougher regime.

‘Those who are caught have to repay the tax they tried to avoid, but they do not face a penalty. There is still no disincentive to try and game the system. That is why Labour will bring in a tough penalty regime for the GAAR, with fines of up to 100% of the value of the tax which was avoided,’ Balls said.

Balls said: ‘For the first time this will provide a tough and genuine deterrent to those who try to abuse the system and avoid paying their fair share of tax.’

He also criticised the coalition government’s approach to tax avoidance, saying that it was ‘going in the wrong direction’ and had seen the tax gap rise to £34bn.

Balls outlined a number of areas where a Labour government would take action, including closing down what he described as ‘the Eurobonds loophole’, addressing umbrella companies and false self-employment, tackling dormant companies and stopping avoidance by hedge funds.

He said Labour would continue to push for developing countries to be fully involved in the OECD’s current Base Erosion and Profit Shifting (BEPS) project.

The shadow chancellor drew parallels between the public’s desire for action on the ‘small minority of people’ who cheat the benefits system, and their belief that the government should be equally tough on companies and individuals who ‘evade or aggressively avoid the taxes they should rightly pay’.

‘Tackling tax avoidance is a key part of our economic plan. A fair and robust tax system is vital if we are to bring down the deficit, safeguard our National Health Service and maintain public support for the dynamic open economy we need,’ Balls said.

The speech came as Labour party leader Ed Miliband also launched his zero/zero campaign to stop the growth in zero hours contracts, while clamping down on top earners whom, he claims, pay zero tax.

Miliband said: 'People are asking why they are on zero hours contracts while those at the top get away with zero tax.

'This zero-zero economy is a symptom of a deeply unequal, deeply unfair, deeply unjust country – a country I am determined to change.'

Probed on this on BBC's Newsnight programme last night, Chuka Umunna, shadow business secretary, was unable to substantiate the number of high net worth tax payers in the UK who effectively pay zero tax, although he confirmed that there were 1.4m people working on zero-hour contracts.