Banks operating in Britain will be banned from using tax havens if they sign up to a draft code of practice drawn up by the government to address a row over their aggressive tax planning.

The draft, which also gives the tax authorities the final say over whether they consider a deal to be avoidance, is more radical than businesses expected when it was announced by Alistair Darling last month. But its stringency will add to widespread scepticism that banks will sign up to the voluntary code, fuelling suspicions that it is primarily a political damage limitation exercise.