Liberal Democrat leader Nick Clegg is to call for a bail-like system of security bonds to tackle visa abuse.
The bonds would be paid as a cash guarantee from visa applicants coming from high-risk countries and would be repaid once the visitor leaves Britain.
In his first speech on immigration as deputy prime minister, Mr Clegg will unveil the radical proposal at the liberal think-tank, the Centre Forum.
He will pledge to “lay the foundations for an immigration system that embodies this nation’s instincts and its values” as he attacks the previous Labour government for “grossly” mismanaging the issue.
Earlier this month, Labour leader Ed Miliband admitted his party failed on immigration.
Mr Miliband again said his party was wrong to relax controls – a move that allowed hundreds of thousands of foreigners to move to the UK.
Mr Clegg will say: “We are grappling with the difficult challenges in our immigration system.
“Brick by brick, we are rebuilding it. Day by day we are making sure, quite simply, that it works.
“All the British people ask is for a system they can have confidence in. We hear that, and we are delivering it.
“I’m determined we lay the foundations for an immigration system that embodies this nation’s instincts and its values – our openness and tolerance on one hand, our sense of fair play, on the other.”
The Deputy Prime Minister will say that visa “overstayers” are one of the biggest challenges faced by the immigration system and the UK Border Agency (UKBA).
“The challenge isn’t just stopping people coming into Britain illegally, it’s about dealing with individuals who come over legitimately, but then become illegal once they’re already here,” he will say.
To tackle this issue, Mr Clegg has asked the Home Office to run a pilot of so-called security bonds, which echoes an Australian system applied to family visas.
It is understood the cost of the bonds would vary but are likely to be in the region of four figures.
Mr Clegg will be seeking views on the proposal, including from the Home Affairs Select Committee .
“The bonds would need to be well targeted – so that they don’t unfairly discriminate against particular groups,” he says.
“The amounts would need to be proportionate – we mustn’t penalise legitimate visa applicants who will struggle to get hold of the money.”
But UKIP, which came second to the Lib Dems in the recent Eastleigh by-election after focusing its campaign on tightening immigration controls, ridiculed Mr Clegg’s plans.
Party leader Nigel Farage said: “Nick Clegg now joins the cavalcade of party politicians who have suddenly noticed a simple fact, that they are not trusted with our country’s borders.
“Since the Eastleigh by-election they have thrown initiative after initiative at the headlines, but to no serious effect. The bottom line is, there is nothing that he, or they, can do about mass migration into this country while our borders are controlled by the European Union.”
Mr Clegg will also reveal plans to increase cash penalties for “unscrupulous” employers who knowingly hire illegal immigrants because they are cheaper.
The maximum fine is £10,000 per illegal worker – Mr Clegg will call for the penalty to “double” and has asked the Home Secretary to “look into the right amount”.
But the deputy prime minister will also seek to reassure British businesses that the Coalition continues to prioritise “growth and building a stronger economy” with immigration a “key part of that”.
He says: “The majority of people who come here work hard and make a contribution. Many have served – and still serve – in our armed forces.
“And if every member of an immigrant community suddenly downed tools, countless businesses and services would suffer.
“The NHS would fall over.”
And Mr Clegg will hit out at the Labour party for leaving the immigration system in “disarray”.
“The problem is that the system has not been well managed. It has been grossly mismanaged. I cannot stress enough just how chaotic it was.”
The speech comes as the Government toughens its stance on immigration with a range of new measures aimed at bringing down net migration to the tens of thousands.
UKBA officials will conduct interviews with more than 100,000 student visa applicants from “high-risk” countries outside the EU to crack down on bogus students.
And a “genuine entrepreneur” test has been introduced to tackle the rising number of foreign nationals attempting to enter Britain by fudging their bank accounts.
But in the wake of criticism from politicians and the higher education sector, some immigration rules were recently loosened in a bid to give additional flexibility to businesses and allow top international students to pursue careers in Britain.