Tax payers funding 'low economy'

According to the Resolution Foundation, a fifth of all employees now earn below the living wage, the rate deemed necessary for a basic standard of living.

It says the economic downturn has pushed a further 1.4m people below that level since 2009 at the height of the recession.

Vidhya Alakeson, deputy chief executive of the Resolution Foundation, a left-leaning think tank, feels that amendments to the current system are needed.

She explained: "We are not calling for an overnight change in the minimum wage, we recognise that the recovery is fragile. We do think that it's a problem at the moment that the government is actually subsidising the wages of many employers through the tax credits system, so these low wage employees, in order to survive and put food on the table, are being subsidised through the tax credit system.

"So we, as tax payers, are paying for the low wage economy."

Mark Littlewood, director general of the free market think tank the Institute for Economic Affairs, said: "We need to look at income 'in the round', rather than just assuming we need to push up wage rates, why don't we try and lower living costs."

First broadcast on BBC Radio 4's Today programme, external on Wednesday 4 September 2013.