The public purse is looted for over £3 billion a year by greedy bosses who force wages down to keep profits high, economist Howard Reed has calculated.

His study for the TUC revealed yesterday the Treasury could pocket over £2bn more in taxes and shave another £1bn off the Benefits Bill if employers paid a living wage.

The calculations are based on last year's living wage - the level needed to cover basic living costs - of £8.55 an hour in London and £7.45 across the rest of Britain which around 4.8 million people are denied.

The living wage has since been raised by 25p an hour in London and 20p elsewhere.

Economic modelling by Mr Reed reveals that low wages have left families in poverty - and a black hole in public finances.

Low-paid workers would contribute an extra £2.1bn in income tax and national insurance if they were paid the living wage.

The Treasury would also save £1.1bn it currently pays out in means-tested benefits and tax credits to subsidise employers' poverty pay.

Over 430 employers are already accredited by the Living Wage Foundation.

But TUC general secretary Frances O'Grady said many more employers can afford to pay up.

"The UK is in the midst of a living standards crisis, and while the economy is slowly starting to recover, ordinary people are a long way from feeling any benefit," she said.

Around 572,000 Londoners - equivalent to 16 per cent of the working population - earn less than the living wage.

Lifting them out of poverty pay would raise £408 million a year in taxes and cut the Benefits Bill by £200, leaving the Treasury an extra £608m.

Scotland's 416,000 underpaid workers - 19 per cent - would contribute over £161m more in tax and receive £84m less in benefits.

Wales has 252,000 workers without a living wage - the highest rate across Britain at 23 per cent - would offer £100.1m more in tax and need £53.9m less in benefits.

Left Economics Advisory Panel co-ordinator Andrew Fisher said rolling back anti-union laws was key to winning higher wages through collective bargaining.

"The TUC data shows how much tax credits have subsidised exploitative employers paying derisory wages in the UK economy, while a few at the top reap huge rewards," he said.

"It is also the case that billions could be saved from the Housing Benefit Bill by capping landlords' rents and building masses of new council housing to stop the milking of the system by the overpropertied."

Ms O'Grady said: "Money is so tight that any unforeseen expenses - like a winter coat for the children or repairing a broken cooker - are forcing families to borrow just to keep their heads above water.

"Britain is crying out for a pay rise and there are real benefits that would come from a nationwide pay boost for the UK's lowest-paid workers."