Businesses that sign up to paying the living wage will be given a 12-month tax break worth up to £1,000 for each worker under plans unveiled by Ed Miliband.
The Labour leader has pledged to introduce “make work pay” contracts to raise wages for millions of low-paid workers if he is voted into No 10.
For each low-paid member of staff whose earnings are boosted, firms would receive a tax rebate worth around £445 on average, although it could potentially reach £1,000. The announcement comes ahead of a major speech this week when Mr Miliband will set out how tackling low wages is key to solving declining living standards.
He will warn that Britain risks “an era of growth without prosperity” as wages stagnate while household costs continue to rise.
“Ordinary families are doing much worse than the averages would suggest because people at the top continue to enjoy faster wage rises than everyone else,” he will say.
“For ordinary families to keep up, we don’t need average wages to just creep higher than prices. That will still leave millions of people worse off.
“We need the kind of strong increases in wages that will genuinely make people all across Britain better off.
“And low wages aren’t just bad for working people and their families. They are driving up the social security bill too as the country has to subsidise more and more low-paid jobs with tax credits and benefits.
“This government pays more out on support for people in work than it does for unemployed people. So to those who say we can’t afford to do anything about wages in our country today, I say we can’t afford not to.
“The Tories are indifferent to millions of families being locked into a permanent cycle of low wages and poverty.”
Companies which sign up to the contracts in the first year after the 2015 election will get back 12 months’ worth of the resulting increased tax and National Insurance revenues received by the government.
Savings from lower tax credits and benefit payments and increased tax revenues in future years would be used to cut social security bills and help pay down the deficit.
Mr Miliband will say: “For every extra pound employers pay up to living wage, the government saves almost 50p on lower tax credits and benefits and higher tax revenues.
“That is why the next Labour government in our first year in office will offer make-work-pay contracts to employers.”
The living wage is £8.55 in London and £7.45 in the rest of the UK, although that will be uprated today. Research by KPMG found that 21 per cent of employees were being paid less than the living wage, up one percentage point from a year ago.
RMT general secretary Bob Crow said: “Today’s living wage announcement is a cop out by the Labour Party.
“Poverty pay should not be an option and the only solution is to raise the statutory minimum wage to the current living wage rate, making it legally enforceable and slamming the door on cheapskate employers looking for an opt-out.”
Marianne Fallon, head of corporate affairs at KPMG, said: “Whilst it is still not easy, earning a living wage can make a huge difference to individuals and their families, enabling them to afford a basic standard of life.”