Bosses will be made to reveal salary differences between their white and ethnic minority staff.
The radical plans to tackle racial inequality mirror rules introduced earlier this year to expose the gender pay gap.
More than 10,000 companies employing over 250 staff would have to publish the figures annually.
Around 10million workers would be covered. Theresa May, who will unveil the plans today, said: ‘Too often ethnic minority employees feel they’re hitting a brick wall when it comes to career progression.
Prime Minister Theresa May (pictured today leaving Downing Street to attend Prime Minister’s Questions) says too often ethnic minorities face a brick wall in terms of career progression
‘The measures we are taking will help employers identify the actions needed to create a fairer and more diverse workforce.’
Businesses are to be consulted on the initiative – part of a nationwide ‘Race at Work Charter’. Officials say the 250-staff threshold may be raised to spare smaller firms.
But Mrs May’s plan was criticised by free market think-tanks.
Matt Kilcoyne of the Adam Smith Institute said: ‘Rather than engaging with the hard task of removing structural barriers to opportunity many still face, this headline-grabbing measure will raise costs to business.
‘Migrants may face natural barriers to success from language, and illegitimate barriers from occupational licensing and discrimination.
‘These figures will mask the complex causes of racial inequality and be used to sour relations between Britons.’
Len Shackleton of the Institute of Economic Affairs said: ‘This is a Pandora’s Box. There are over 100 ethnicities in this country, most of which are as different from each other as they are from white Brits.
‘Forcing businesses to report on pay will result in meaningless statistics because the numbers for particular ethnicities within one firm are likely to be statistically insignificant, where nothing can be really be gleaned from them.
‘Essentially the Government would be burdening businesses with more bureaucracy without any useful return.’
Matthew Fell of the Confederation of British Industry said pay transparency could be a catalyst for action.
But he warned: ‘Reporting must be done in a way that is supported by both businesses and employees, to recognise the wide range of ethnic groups and legitimate staff concerns about intrusiveness where sample sizes are small.’
Mrs May will also today set out the actions she is taking to ensure public sector leaders are representative of the communities they serve.
The NHS, military, schools and police forces will have to set out plans to increase high-level recruitment from ethnic minority backgrounds.
The Government is naming Karen Blackett, a senior executive at the advertising giant WPP, as its ‘Race at Work Champion’. Miss Blackett, whose parents grew up in Barbados before moving to Britain, has spoken of how her promotion was important because she is black, female and from a working-class background.
The NHS will be among the employers required to set out plans to increase high-level recruitment from ethnic minority backgrounds
She said: ‘The ad industry is not diverse enough. It doesn’t reflect the consumer base that our clients are targeting.’
Ministers have also secured a number of high-profile inaugural signatories to the Race at Work Charter. They include Standard Life Aberdeen, Norton Rose Fulbright, Saatchi & Saatchi, KPMG, RBS and Lloyds Banking Group, which has set a goal to increase the representation of ethnic minority employees at senior levels.
Mrs May said last night: ‘Our focus is now on making sure the UK’s organisations, boardrooms and senior management teams are truly reflective of the workplaces they manage.’
Today’s announcement comes a year after the Prime Minister published a disparity audit she ordered when she entered Downing Street to show how people of different ethnic backgrounds were treated.
In 2017, average hourly pay for white workers was £11.34 – 10p higher than for the other ethnic groups together.
But those from the Indian ethnic group led with £13.14 and Pakistani/Bangladeshis were worst off with £9.52.
The gender pay figures published in April were criticised by some as a blunt measure that failed to account for why men and women might be doing different jobs and on different salaries.
The average – median – salary difference was 9.7 per cent in favour of men. The figures showed that 78 per cent of employers paid men more than women on average, and 14 per paid women more.
Just 8 per cent said they had no pay gap.