The G7 group of industrialised nations have agreed that collective action is needed to ensure that firms and individuals pay the tax they owe.

Finance ministers meeting outside London pledged their commitment to combating tax evasion, which is illegal, and tax avoidance, which occurs when individuals and companies take advantage of legal loopholes.

"It is vital that both developed and developing countries collect the tax that is due to them," George Osborne, the British finance minister, said on Saturday.

Britain has made the issue a priority of its presidencies of the G7 and G8.  

The G7 comprises Britain, Canada, France, Germany, Italy, Japan and the United States. The G8 is the G7 plus Russia.

The G7 also reaffirmed its commitment to reforming financial regulation.

"It is important to complete swiftly our work to ensure that no banks are too big to fail," Osborne said.

"We must put regimes in place ... to deal with failing banks and to protect taxpayers and to do so in a globally consistent manner."

The emergency rescue of Cyprus after a near meltdown in March served as a reminder of the need to finish an overhaul of the banking sector, five years after the world financial crisis began.

Austerity vs growth

The G7 ministers also appeared to smooth over US-European differences on how to balance deep austerity measures with ways to support fragile growth.

The US has put pressure on European nations to scale back their spending cuts amid fears they may harm growth, but Osborne said the meeting revealed much common ground.

"This meeting confirmed there are more areas of agreement between us on fiscal policy than is commonly assumed," he told reporters.

He said the G7 had "discussed the importance of having in place credible, country-specific, medium-term fiscal consolidation plans for ensuring sustainable public finances and sustainable growth".

French Finance Minister Pierre Moscovici appeared to echo Osborne's remarks.

"The consensus is gaining momentum in the way we balance support for growth and fiscal consolidation," he said.

"There is still a real will to reduce the deficits but certainly there is a change of tone" among G7 members."

Source: Agencies