The business secretary Sajid Javid has ordered an investigation into what he describes as the "abuse" of tipping in restaurants.
The announcement comes just days after the government minister raised the spectre of potential intervention when he said he was getting increasingly concerned about the practice of some restaurants, and "will be taking a serious look into the issues raised".
The investigation will look into whether there should be a cap on the proportion of tips businesses can withhold, reported the BBC.
It was prompted by recent reports, which found that a proportion of service charge at some restaurants were being spent on administrative costs.
However trade union Unite, which launched a campaign against PizzaExpress to force the company to scrap its policy of deducting 8% from tips paid to staff on credit cards at the start of August, opposed the capping proposal, describing it as "impossible to enforce".
Unite officer Dave Turnbull said the union was pleased that "the government has woken up to this scandal" but warned that an effective solution needed "careful consideration".
"Capping admin fees will simply legitimise the underhand practice of restaurants taking a slice of staff tips and be near enough impossible to enforce," he said.
"Rather than tinkering around the edges, Sajid Javid should be looking to scrap what is effectively a tax by restaurant bosses on money meant for the pockets of hard-working staff."
Javid said the government wanted a "fair deal" on pay for working people and that this included "taking action on tipping abuse".
He said: "I'm concerned about recent reports, suggesting some restaurants pocket tips for themselves. That's just not right.
"I've ordered an immediate investigation to look at the evidence and consider the views of employees, customers and the industry to see how we can deal with the abuse of tipping."
A formal call for evidence will conclude in November.
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