Householders who pay tradesmen in cash are "morally wrong", a Treasury minister has said.
Exchequer Secretary David Gauke accused homeowners who give workers cash of helping them avoid tax.
He said: "Getting a discount with your plumber by paying cash in hand is something that is a big cost to the Revenue and means others have to pay more in tax.
"I think it is morally wrong. It is illegal for the plumber but it is pretty implicit in those circumstances that there is a reason why there is a discount for cash.
"That is a large part of the hidden economy."
The Government loses about £2 billion each year to the black economy as tradesmen fail to pay VAT or income tax by not declaring payments and keeping them "off the books".
Mr Gauke's comments, in an interview with The Daily Telegraph, come as HM Revenue and Customs plans an amnesty to encourage workmen to pay their fair share of taxes.
Yesterday, Mr Gauke announced tax advisers who use avoidance schemes that push the law to its limits will be named and shamed in a crackdown to help recoup £5 billion for the public purse.
When tough decisions needed to be made to cut the budget deficit, it was galling for the hard working majority to see others shirk their civic duty by using aggressive avoidance schemes, the minister told the think-tank Policy Exchange.
His comments came as the Government launched a consultation paper on its planned reforms. It follows a wave of disclosures about the financial loopholes used by the rich and famous to legally side-step hefty tax bills.
Mr Gauke said: "At a time of economic difficulty, when tough decisions have to be made on public spending and when the burden of taxation remains high, there is little sympathy for those who do not make their full contribution.
"For those who work hard and pay their taxes, it is galling to see others shirk their responsibilities on either front."
He said there was a stark difference between major accountancy firms which used legitimate methods to reduce their clients' tax bills and niche outfits who peddle crude schemes to avoid liabilities.
Mr Gauke added: "These schemes damage our ability to fund public services and provide support to those who need it.
"They harm businesses by distorting competition. They damage public confidence and they undermine the actions of the vast majority of taxpayers, who pay more in tax as a consequence of others enjoying a free ride.
"These firms behave differently to the well-established, reputable advisory firms. They change name frequently to avoid detection; they include fighting funds in their fees, pre-empting an inevitable clash with the authorities, and often do not comply in full with HMRC's disclosure rules."
The Treasury hopes the reforms will mean officials, often hit with dead-ends when investigating schemes that are based off-shore, will be able to follow up new leads as cowboy tax advisers are forced to disclose their client databases.
Those customers will then be formally warned how much they could owe if the scheme fails to stand up to legal scrutiny.
Comedian Jimmy Carr last month admitted to making a "terrible error of judgment" when it emerged he used a complex scheme to reduce his tax bill. The K2 tax-avoidance scheme Carr is said to have used enables members to pay income tax rates as low as 1%.
But union leaders said the Government would be better off closing the loopholes used by avoidance schemes.
TUC general secretary Brendan Barber said: "As well as targeting aggressive tax avoiders, ministers must cut this multi-billion pound problem off at source by closing the many loopholes that the super-rich exploit.
"Successive governments have run shy of reforms to ensure the very wealthiest pay their fair share of tax. But with countries around the world under pressure to reduce deficits, fair tax is an economic necessity."
The TaxPayers' Alliance said ministers needed to concentrate on reforming the complex tax system.
Director Matthew Sinclair said: "The Government is right to act to ensure that everyone pays their fair share of tax, but new powers to uncover specific abuses are a poor substitute for serious reform of the tax system so that there are fewer loopholes.
"Ministers need to be more realistic about HMRC's ability to clamp down when its resources are so stretched simply administering our hideously complicated taxes, let alone chasing those finding creative and legally dubious ways around them.
"With a better tax system, HMRC staff can focus their attention on tackling those who are abusing the system. Proper reforms can ensure that everyone pays no more, and no less, than their fair share."
Mr Gauke later told BBC2's Newsnight some Tory ministers may have previously paid workers in cash, but denied doing so himself.
"I've never said to a tradesman, 'If I pay you cash, can I get a discount?'," he said.
But asked if colleagues had, he replied: "I don't know, but if people do do that they have to do so with the recognition that means taxes will be higher for the rest."
Tariq Dag Khan, Chief Marketing Officer at Rated People, however, argued that traders have little choice but to take cash payments.
He said: "David Gauke’s comments that it is morally wrong to pay tradesmen in cash do little to help tradesmen who are struggling in a difficult economic climate. For the reality is that there is little or no alternative to cash payments for many tradesmen, and criticising the whole industry belies a misunderstanding of the situation many customers and tradesmen are in.
“There is a great deal of trust involved when hiring a tradesman for both the tradesman and the customer and therefore cheque payments do not provide a viable alternative especially when, if the cheque bounces, the tradesmen could be dangerously out of pocket and in some circumstances forced out of business as a result.
"At RatedPeople.com we always recommend consumers hold payment for work until a job has been completed and we encourage all consumers to report suspected tax evasion to HMRC."