Ed Miliband will pledge to crack down on “cowboy employment agencies” on Monday as he outlines a raft of measures that will ban exclusive recruitment of overseas workers and close loopholes that allow the wages of permanent staff to be undercut.

As new figures show that the number of people on temporary agency contracts is at the highest level since 1997, the Labour leader will pledge to end working practices which allow agencies to operate “in the shadows of our economy and on the margins of the law”.

Miliband will outline a three-point plan to:

• Close a legal loophole known as the Swedish derogation which allows employment agencies to pay agency workers a lower rate than permanent employees if they are paid between assignments. Labour says there is evidence that agency workers are sometimes paid the lower rate even when they work regular shifts.

• Ban employment agencies from recruiting exclusively from abroad.

• Force “rogue agencies” that exploit workers illegally to sign up to a licensing system. Authorities would have the power to revoke a licence if they are found guilty of misconduct.

Miliband will say: “We will not tolerate a zero-zero economy where hundreds of thousands are kept on zero hour contracts while a tiny privileged minority pay zero tax. And nor will we tolerate a world of work that is becoming more brutal because of the way some cowboy employment agencies have been allowed to operate. They are undermining dignity at work, driving down standards and creating greater insecurity for families.

“There has been a huge increase in temporary agency work in recent years. Many employment agencies play their part in supporting businesses, as well as workers, who want flexibility. But there is now overwhelming evidence that some are operating in the shadows of our economy and on the margins of law, damaging the basic fabric of British life that hard work should be properly paid.

“Even the industry itself is expressing concern that the number of rogue agencies have increased in recent years. They are breaking the law on the minimum wage, failing to pay their taxes, and exploiting workers to undercut the wages of permanent staff. These rogue agencies need to know their time is up and we will act.”

Miliband will outline his reforms after the latest official quarterly figures (July to September) showed a 36% increase in the number of temporary agency workers compared with 2009. There is a 20% increase compared with last year.