The UK economy would benefit from a £1.5 billion boost if just one in four low paid workers received the voluntary real Living Wage, a new study suggests.

Increasing wages to the rate of £10.85 an hour in London and £9.50 outside the capital would boost productivity and spending, said a report by the Living Wage Foundation and the Smith Institute think tank.

The study also found that an increase in Living Wage jobs could provide huge benefits to local economies, especially big cities such as London, Greater Manchester, Liverpool, Cardiff and Glasgow.

The report said that if a quarter of low paid workers were lifted on to the Living Wage, more than 1.5 million people would benefit, giving an average annual pay rise of £520 outside London and £950 in the capital.

The foundation said that despite the impact of the Covid crisis, employers have continued to commit to pay the real Living Wage, with more than 2,900 more employers signing up since March 2020.

Despite the trend, more than five million people are still employed in jobs paying less than the real Living Wage, it was reported.

Graham Griffiths, director of the Living Wage Foundation, said: “All of us have been affected during this crisis, but the real Living Wage offer a clear way to now recover and rebuild with stronger foundations.

“Workers and families need jobs that meet their everyday needs and allow them to thrive. Businesses need healthy and motivated workers unburdened by the stress of low pay.

“Cities and towns need local consumers with sufficient wages to stimulate economic growth.”

Manchester City v Everton – Premier League – Etihad Stadium
Mayor of Greater Manchester Andy Burnham wants to make Greater Manchester the UK’s first Living Wage City-Region (PA)

Paul Hunter, deputy director of the Smith Institute, said: “The real Living Wage not only transforms the lives of low paid workers and improves business performance, but also provides a growth dividend for local economies.

“As we exit the worst of the pandemic, increased real Living Wage coverage can boost spending and support a wage-led recovery in our towns and cities.”

Sadiq Khan, Mayor of London, said: “I am extremely proud that the number of Living Wage accredited employers in London has more than doubled since I took office, to nearly 2,300

“This research shows clearly that paying the London Living Wage isn’t just the right thing to do, it makes good economic sense.

Mayor of Greater Manchester, Andy Burnham, said:  “Our ambition is to make Greater Manchester the UK’s first Living Wage City-Region. This report clearly sets out the wider benefits that would be felt in our local economy by achieving that aim.

“Beyond the pandemic, we want to build an economy that works for everyone. Ensuring everyone in Greater Manchester is paid a real living wage for real living hours is the first step.”

The real Living Wage is higher than the official minimum wage rate of £8.91 an hour for adults.

A Business Department spokesperson said: “We commend employers who pay more when they can afford to do so. The Living Wage Foundation are clear their measure is voluntary.

“The Government is taking action to support the low paid. We have committed to increase the National Living Wage to reach two thirds of average earnings by 2024, and plan to allow up to 1.8 million low-paid workers to pick up extra work if they want to by cracking down on restrictive employment contracts.”