Labour calls for £7.20 an hour 'living wage' - Telegraph.co.uk

However, the pair are now said to be working together on developing the new policy for a living wage, which would rise to over £8.30 in London.

The Labour leader said: "You go out, slog your guts out...you deserve a decent wage if the company can afford it.

"We've got a growth crisis in Britain but we've also got a living standards crisis, because the proceeds of economic growth are not being fairly distributed any more," he told the Independent on Sunday.

Writing in The Observer, in a joint article with the Unison general secretary, Dave Prentis, David Miliband said called for "fair pay for a fair day's work" as part of the "basic deal" for low earners.

"This problem needs to be mended if we are to make progress as a nation," they said.

The Institute for Fiscal Studies estimates that for every person moved on to the living wage, the Treasury would save around £1,000 from less spending on tax credits and from increased tax revenue.

A number of major firms already pay workers and contractors a living wage - which stands at £8.30 an hour in London - or higher.

Barclays has paid the living wage in London since 2007, while 19 local authorities have been accredited as "living wage employers".