Number of those below cost-of-living benchmark has risen 400,000 in a year, with women and the young worst hit

The number of people who are paid less than a “living wage” has leapt by more than 400,000 in a year to over 5.2 million, amid mounting evidence that the economic recovery is failing to help millions of working families.

A report for the international tax and auditing firm KPMG also shows that nearly three-quarters of 18-to-21-year-olds now earn below this level – a voluntary rate of pay regarded as the minimum to meet the cost of living in the UK. The KPMG findings highlight difficulties for ministers as they try to beat back Labour’s claims of a “cost of living crisis”.

According to the report, women are disproportionately stuck on pay below the living wage rate, currently £8.55 in London and £7.45 elsewhere. Some 27% of women are not paid the living wage, compared with 16% of men. Part-time workers are also far more likely to receive low pay than full-time workers, with 43% paid below living-wage rates compared with 12% of full-timers.

The London mayor, Boris Johnson, will tomorrow announce a new, higher rate for the living wage in the capital, while in a speech on Tuesday the Labour leader, Ed Miliband, will flesh out how his party will create economic incentives for companies to adopt the living wage.

Miliband will pledge that in the first year of a Labour government firms which sign up to the living wage will receive a tax rebate of up to £1,000 for every low-paid worker who gets a pay rise, funded by tax and national insurance revenue from the higher wages. There will be additional savings from lower tax credits and benefit payments.

A Labour spokesman said the commitment would be “a good deal for the low paid, a good deal for British business and a good deal for the taxpayer”. Supporters of the living wage argue that it can save companies money by improving staff morale and performance and reducing staff turnover.

Separately, ahead of Living Wage Week, during which campaigners will highlight a rise in the number of organisations that are accredited as paying it – from 60 to more than 400 in the last year – business secretary Vince Cable has announced that he is taking steps to make his department pay its lowest earning staff at a level closer to the living wage.

A Department for Business spokesperson said that “on the basis of fairness and current affordability” Cable had “instructed his department to raise the wages of the lowest paid contracted staff working at BIS premises across the UK”.

Pressure on government to act also comes from the charity Save the Children, which today produces new data showing that the number of children living in families with earnings below the living wage has risen from 1.82 million in 2010-11 to 1.96 million in 2011-12.

The charity said it was increasingly concerned that 1.7 million households struggling with low incomes would have lower entitlements under the universal credit welfare reforms, which will merge a number of benefit payments into one.

Save the Children’s Priya Kothari said: “More children risk being pushed into poverty because work isn’t paying enough; two-thirds of children in poverty live in households where one or both parents work. How can that be right? Paying the living wage might help mitigate some of the negative effects of universal credit.”

The KPMG research finds that Northern Ireland has the highest proportion of workers paid less than the living wage, at 26% (2012 report: 24%), followed by Wales at 25% (2012: 23%). The lowest proportions are in London at 17% (2012: 16%) and the south-east at 18% (2012: 16%). However, by numbers of people the north-west, London, and the south-east are the three most affected areas.

Matthew Bolton of Citizens UK, the organisation that first began campaigning for the living wage, said: “This research shows that working poverty in Britain is a growing scandal. Every one of those five million working people has a story of struggle: working two jobs, no time with the children, choosing eating over heating. We ask every employer to stop and think about the people that clean up, serve food and work the tills.”
Toby Helm, political editor
The Observer, Saturday 2 November 2013