Private debt collection agencies are to be paid to recover billions of pounds in unpaid tax, the Liberal Democrats have announced.

The announcement was made by Danny Alexander, LibDem Chief Secretary to the Treasury, at the LibDem annual conference in Liverpool who said that millionaire tax dodgers who hide their money abroad would be one of the targets.

It is thought that an estimated £19 billion is taken out of the economy per annum as a direct result of avoiding paying taxes, and from criminal abuse.

Officials have already stated that the debt collection agencies who will be utilised would have to conform to a strict code of conduct and also be registered with the Department for Work and Pensions (DWP), to qualify for the work.

With the recent announcement of unpaid tax bills for hundreds of thousands of people for no fault of their own, the newest announcement was always going to prove controversial. Is is estimated that 1.4 million people will receive a demand for unpaid tax before Christmas.

These new measures could see upto £1 billion of unpaid tax debt being passed across to debt collection agencies each year and follows on from an earlier announcement that was made voer the summer which would see cash awards for the agencies who catch benefit cheats.

As part of the crackdown, HM Revenue & Customs (HMRC) will set up a team of investigators to catch wealthy taxpayers hiding money offshore.

The issue has been a bugbear for the LibDems, who have been stung by claims that they are cutting benefits at the same time as allowing wealthy tax evaders to escape punishment.

Other plans announced yesterday include schemes to scrutinise the tax returns of high earners, and a target to increase five-fold the number of people prosecuted for tax dodging.

There are also plans for a clampdown on alcohol and tobacco smuggling, estimated to cost the exchequer hundreds of millions of pounds a year in lost tax revenue.

Making the announcement, Mr Alexander said that some people decided as a “lifestyle choice” to avoid paying their full share of tax. “Like the benefit cheat, their actions take resources from those who need them most,” he told delegates.

Mr Alexander used his speech to admit responsibility for the Coalition Government’s public spending cuts, describing them as “our cuts too”. The phrase was a sharp contrast to ministers’ language in recent weeks, which has attempted to brand them as “Labour’s cuts”.

The announcement came as Nick Clegg pledged that the Tory–LibDem Coalition would come down “as hard on tax cheats as on benefits cheats”, as ministers battle to reduce the deficit.

The clampdown on tax dodging is estimated to cost £900 million over four years. However, ministers said that the benefits would far outweigh the cost and estimated that it would net the country an extra £7bn annually by 2015.

Liam Byrne MP, shadow chief secretary to the Treasury, said that he welcomed “any and every” crackdown on tax dodgers.

But he accused the LibDems of offering “progressive poses” to distract attention from the realities of their budget, which, he said, “hits the poorest hardest”.

Tax evasion and tax avoidance are each estimated to cost the Treasury £7bn a year and attacks on the tax system by organised criminals are thought to cost the economy around another £5bn a year.