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Labour leader Ed Miliband has said companies which agree to increase the pay of those on low incomes will be offered tax breaks under a Labour government.
However some small businesses are already warning it would still be unaffordable, despite the cuts worth up to £100 per worker.
ITV News Correspondent Neil Connery reports.
RMT general secretary Bob Crow has described today's living wage announcement by Labour as a "cop out"
Mr Crow added: "Poverty pay should not be an option and the only solution is to raise the statutory minimum wage to the current living wage rate, making it legally enforceable and slamming the door on cheapskate employers looking for an opt out.
"Offering employers a tax break to try and drag them into paying a decent rate just smacks of corporate welfare and will stick in the throats of millions of people who have had their benefits cuts and frozen."
Businesses that sign up to paying the living wage will be given a 12 month tax break for each worker under plans unveiled by Ed Miliband.
For each low paid member of staff whose earnings are boosted, firms would receive a tax rebate worth around £445 on average although it could potentially reach £1,000.
The Labour leader has pledged to introduce make work pay contracts to raise wages for millions of low-paid workers if he takes the keys to No 10 at the general election.
The so-called living wage is £8.55 in London and £7.45 in the rest of the UK although that will be uprated tomorrow.