MILLIONS of workers might not benefit from the economic recovery as they face a "double squeeze" between rising living-costs and stagnating wages, an inquiry ledby the Archbishop of York, Dr Sentamu, has suggested.

The draft report Working for Poverty, produced by the Living Wage Commission chaired by Dr Sentamu, says that taxpayers will have to foot the bill for increased benefits. The Commission, which is demanding the introduction of a minimum wage of £7.65 an hour, and £8.80 in London (the current legal minimum is £6.31), is due to produce its final report in June.

The draft report finds that more than half of the 13 million people in poverty in the UK are in families where someone is in employment; and a fifth of those in work - 5.24 million - are paid less than the living wage.

Although real average wages have risen by 13 per cent since 1999, economic output has grown by four times that, and housing costs have tripled. Utility bills have risen by 88 per cent in the past five years, and food now costs 44 per cent more; but vehicle bills have remained stable, and the cost of audio-visual equipment has halved.

"The idea of making work pay is an empty slogan to millions of people who are hard pressed and working hard, but find themselves in a downward social spiral," Dr Sentamu said. "They are often in two or three jobs, just to make ends meet. Meanwhile, the UK taxpayer picks up the bill in tax credits, in-work benefits, and decreased demand in the economy."

Employers who were benefiting from the recovery must pay people a living wage, he said. "They should choose between continuing to make gains on the back of poverty wages, or . . . paying a fair wage for a hard day's work."

The study also found that children of parents on low pay were less likely to achieve at school; andthat a worker earning the living wage had nearly twice as much family time during a working week than somebody on the minimum wage.

A fellow member of the Commission, and director general of the British Chambers of Commerce, John Longworth, said: "Many businesses tell us that there is a limit to what they can afford. Prudent rises in the minimum wage, and praise for businesses that aspire to a living wage, are the way to preserve jobs."