Paying the voluntary “real” living wage would boost the North East economy by £29m a year, experts say.

And that would bring in an extra £17m a year for public services such as the NHS.

The figures come from a study looking at the how the UK’s big cities and the surrounding regions would be affected if every employer paid the “living wage” - a minimum amount that academics say is needed to have a reasonable standard of living.

This currently comes to £8.75 an hour outside London, or £10.20 per hour in the capital. But the figure is voluntary, and although some businesses, local councils and public services have chosen to ensure every employee is paid at least this amount, about a fifth of UK workers are paid less.

Call centre workers
Call centre workers

Think tank the Smith Institute has produced a new report which concludes that paying the Living Wage to every worker would have a positive effect on economic growth.

North East employees currently paid less than the living wage would enjoy a pay rise of £980 a year, on average, or £640 a year after tax and benefit reductions.

And although costs for some firms would increase, it would be a huge help to the economy overall.

Researcher Paul Hunter said: “The key consideration is whether increased wages for low income workers boosts productivity, or whether costs are simply passed on to others locally, with little additional economic benefit. This report seeks to address this question, and explores how the take up of the real living wage is likely to impact growth within a city region.”

He added: “The report’s findings suggest that if living wage take up is scaled up there are significant potential benefits to local economies, with higher wages boosting productivity and providing additional local spending.”

How much increasing 'real' living wage would boost the North East economy

Mayors and local councils could help achieve this by encouraging firms and organisations they work with to pay the living wage, Mr

Hunter said.

Tess Lanning, director of the Living Wage Foundation, said: “By championing the real living wage based on what people need to get by, leading mayors and local authorities can build successful, dynamic local economies and most importantly ensure that the proceeds from growth are fairly shared.

“With over 5.5 million people still paid too little to live on, the real living wage is a key plank of any strategy seeking to tackle the UK’s problems of in-work poverty, regional inequality, and weak productivity.”

The Government sets its own living wage, which is the legal minimum employees aged 25 and over can be paid. This is currently £7.83 an hour.