The Unfinished Business: The Quest for a Living Wage report, published today by the Fair Pay Network (FPN) and supported by the TUC, says that approximately 5.3 million people's wages - more than one-fifth of all employees in Britain - fall below the low pay threshold of £6.75 an hour, which is one of the highest rates in Europe. As a result, the economy suffers from significant levels of wage inequality and people having to work long hours to meet their basic needs, it warns.
The report finds that since 1997, the poorest 10% of households have seen their weekly incomes fall by £9 a week. As real wages have fallen, the gap between what people earn and what they need has increasingly been filled by debt. The amount owed by UK households has tripled in the last decade.
The FPN and the TUC have urged employers to join the growing ranks of organisations that are paying staff a living wage and called on MPs to support the campaign.
Karen Buck MP, chair of the FPN, said: "As an inner-city MP I see all too often how low pay leaves individuals unable to provide for their families and households through their wages alone. Living wage initiatives are a means of tackling working poverty by making sure work pays and galvanising local economies.
"Rather than retreat in the face of recession and austerity, MPs should be remaking, restating and amplifying the case for living wage initiatives across the country, both in the private and public sector, as a route towards a fairer and more socially just society."
Frances O'Grady, deputy general secretary at the TUC, added: "The living wage campaign has made enormous strides since 2001, taking thousands of families out of poverty and helping to boost fragile local economies in cities that have adopted living wage policies.
"Government ministers, public authorities, businesses and the City have seen the moral and practical benefits of paying a living wage. This is not a luxury in a time of economic downturn, but the key to building a fair, equitable and sustainable recovery."
Professional services firm KPMG is one of the 85 employers that have signed up to the London Living Wage pledge, which means all of its staff are paid at least £7.85 an hour.
Guy Stallard, head of facilities Management at KPMG Europe, said: "We have found that paying the living wage has benefits on both sides, as increasing wages has reduced staff turnover and absenteeism, whilst productivity and professionalism has subsequently increased."