Business Secretary Vince Cable has admitted to paying workers cash in hand for services after a Tory cabinet colleague described it as a form of tax avoidance and morally wrong.

The LibDem MP said there was nothing wrong with the practice as the Treasury was hit by a backlash yesterday from plumbers, builders and electricians after Exchequer Secretary David Gauke's comments.

Mr Gauke had attacked the black economy, saying helping a tradesman to avoid tax by paying him in cash was a "big cost to the Revenue and means others have to pay more in tax".

Asked if he had ever paid cash-in-hand, Mr Cable told ITN News: "Of course, it's perfectly legal and perfectly moral, providing you're not doing it with the objective of avoiding tax and I certainly wouldn't do that.

"There's nothing wrong with paying people cash. Absolutely nothing wrong at all. What is wrong is if people do it knowing that this is a way to avoid tax and where there is an understanding that somehow the differences will be split."

He added: "The real abuse takes place in the multi-million, multi-billion tax dodges. That is where the Government is now starting to crack down hard."

Tariq Dag Khan from the tradesmen website Rated People said Mr Gauke's comments would do little to help tradesmen who are struggling in a difficult economic climate.

John Mann, the Labour backbencher, said George Osborne and his team "can-not resist attacking the work- ing classes in Britain leaving millionaires and large multinationals free to hide money in UK secured overseas territories".