CASH-in-hand payments will remain a "legitimate" way of settling bills, Downing St has insisted, despite claims that Britain’s so-called hidden economy is costing the taxpayer more than £6 billion a year in lost tax.

The Taylor Report, a flagship review of workers' rights and modern employment practices commissioned by the UK Government, called on Philip Hammond, the Chancellor, to use this autumn's Budget to announce measures to crack down on such widespread tax evasion by introducing electronic payments such as credit cards to encourage the move to a cashless economy.

At the report’s launch in London, Matthew Taylor, its author, suggested use of electronic methods could be made a condition of migrant workers' visas, preventing them from taking cash payments for jobs.

At Westminster, Jeremy Corbyn, the Labour leader, agreed it was "obviously" wrong for cash payments to be used as a means of avoiding tax and made clear he would like to see the practice phased out.

However, a Downing Street spokeswoman said while it was important to at the forefront of technology to make it easier to pay for things, she noted: “But, at the same time, many people prefer to pay cash-in-hand and that is a legitimate way of paying for goods and services.”

She stressed how the onus was on the person receiving a cash payment to ensure it was declared in the correct way.

The Taylor Report cited HM Revenue and Customs figures that cash-in-hand payments to casual workers like gardeners and window cleaners contributed to a grey economy, which accounted for almost 20 per cent of the gap between the amount of tax due and the total paid.

It said a move towards digital transactions would create an audit trail to make it easier for tax liabilities to be pursued and would encourage a change of behaviour in those currently failing to pay the correct amount.

Mr Taylor, a former adviser to Tony Blair who is now chief executive of the Royal Society of Arts, said: "Government should consider accrediting a range of platforms designed to support the move towards more cashless transactions with a view to increasing transparency of payments, supporting individuals to pay the right tax."

His report recommended the creation of a new category of worker in employment law called a "dependent contractor" to cover those who were not full-time employees but did not enjoy the autonomy traditionally seen as part of self-employment.

However, it received a lukewarm response from unions and employment lawyers, who said it did little to help the growing number of workers in delivery and taxi firms such as Deliveroo and Uber.

On zero hours contracts, Mr Taylor argued there was nothing wrong them but argued they should be a means to “two-way flexibility not a lazy way for those with market power to dump risk on those who lack that power".

Mrs May said the Government's response to the report later in the year would be guided by the aim of ensuring the “interests of employees on traditional contracts, the self-employed and those people working in the 'gig' economy are all properly protected".

But she insisted Britain must avoid "overbearing regulation", retain flexibility in the labour market and remain "a home to innovation, new ideas and new business models".

Labour said the report confirmed "insecurity is the inevitable new norm" for workers in the gig economy.

Rebecca Long-Bailey, the shadow business secretary, said it had missed the chance for major reforms to help those in insecure employment, adding it could pave the way for a loss of rights for Uber workers that had recently been won in the courts.

However, she also said using Uber cabs was not "morally acceptable” as Ms Long-Bailey accused the taxi service of "exploiting" drivers.

Chris Stephens for the SNP said the report "falls shamefully short" in tackling unfair work practice.

“Today’s response to the Taylor review from the UK Government tells us everything we need to know about their approach to workers’ rights; a weak set of proposals and a set of talking points that leaves the balance of power with employers and big business," said the MP for Glasgow South West.