There’s the man who comes into the west London food bank, ashamed he can’t feed his children this week, though he works full-time at the Charing Cross hospital. There’s the trainee childcare worker I met there last Friday, who certainly can’t feed and heat herself on her pay. They leave with basic dry food in carrier bags, but no answer to an economy that ordains lifetimes of pay no family can live on. They are members of a growing army of 5.28 million – the 22% – paid less than a living wage to keep body and soul together.

“Predistribution” was Ed Miliband’s much mocked word, by which he meant fair pay from employers, not benefit top-ups from government. Making employers pay the living wage once looked set to become Labour’s signature theme. The simple message that a week’s pay should be enough to keep a family out of poverty resonated with the public. Polls strongly support it. Fair pay, not benefits or subsidies to miserly employers, brought Labour into being – so why is the party in danger of letting this strong emblematic policy slip away?

The voluntary living wage rate has now risen 20p to £7.85 an hour (£9.15 in London) for companies that have signed up. But that improvement contrasts with a crisis of shrinking pay that is draining the Treasury of tax receipts and leaving taxpayers to pick up the benefit top-up bill for mean employers. Not for 140 years has pay fallen so far and for so long. Worse, this looks increasingly like the new normal. The pay gap between women and men is growing again too: women form the bulk of the lowest paid. Another 250,000 fell below the living wage in the last year, but the true state of pay is hidden by official figures, which ignore the 1.7 million self-employed, most not entrepreneurs but minicab drivers. The number of people on the minimum wage has doubled since 1999: it is becoming the norm not the floor.

Where is Labour, which should be driving the push for fair pay? Fumbling and mumbling, with an air of uncertainty. Its cautious conference promise to raise the minimum wage to £8 an hour by 2020 was rapidly punctured: this doesn’t reach the poverty threshold, and is barely more than an inflation rise. Better than the Tories, but unimpressive and it’s no answer to Miliband’s thoughtful early words about the dysfunctions of modern capitalism.

Pay is falling as a share of GDP, transferred into higher profits. The hourglass-shaped jobs market has rising pay for the top few, a hollowed out middle and a growing pool of the very low paid, with no ladders up. Move up, upskill, get qualified and productive! That’s the conventional answer – and Labour has good plans for high-quality apprenticeships and training that British employers are so bad at providing.

But the harsh fact remains that in this service economy large numbers will now and for ever work in care, hospitality, retail, cleaning and security (many overqualified – a third of graduates do low-paid work). These are essential jobs: what’s wrong is low pay, and the lack of social respect that goes with miserable wages.

These jobs can’t be more productive, employers already keep staffing to the bare minimum. Each care worker looks after too many people; supermarkets install DIY checkouts; ATMs replace bank staff; cleaners’ rounds are micro-managed to cover maximum floorspace.

Profit in outsourcing comes from cutting pay and squeezing the workforce. No one works harder than the low paid, their supervisors pressured to cut hours and staff. Even John Lewis refuses to bring back inhouse its underpaid outsourced cleaners. Scandalous zero-hours work returns us to pre-trade union days and disposable, powerless people. From this wretchedness, Labour emerged to give people basic rights and a sense of dignity in work. With weak unions, only the government can stop exploitation.

Citizens UK, an alliance of community organising groups, has campaigned, cajoled and shamed more than a thousand companies to pay the living wage. But even so, only 60,000 people are covered by this pay rise. Most employers to sign up have few low-paid staff. No supermarkets or large care firms are involved. Citizens UK’s great triumph is in alerting the country to sinking pay. Thanks to its campaign support for a living wage is strong. It would cost the state £620m to pay the living wage to all its employees – but £260m would be recouped in extra taxes and less benefit. Make it universal and the state gains £2.2bn in reduced benefits and extra taxes.

Under Labour the Low Pay Commission would recommend sectors and regions that could afford a living wage – but it should be compulsory. As with the minimum wage, no one supermarket, large care provider, fast-food or hotel chain dare go it alone – but if it is compulsory, none are at a competitive disadvantage. Allowing variation for small employers, adopting a living wage by 2020 would show voters from Clacton to Medway, Rochdale to Glasgow, that Labour understands there is no recovery for well over half of all voters.

A fit of nerves has seized Labour. Bold policies – from demanding that Amazon and others pay their taxes, to rent controls – emerge pale and bleached. Trouble brews on tuition fees now. More needs to be done on financing the NHS, or that totemic policy risks blurring too. I see Labour MPs and shadow ministers hold their heads in their hands, asking why strong popular policies emerge watered down, weedy and weak. “Ed Balls says no” is the stock answer. But it’s the Treasury’s job to say no. It’s for the leader to override caution when shaping policies that identify Labour’s values and purpose.

The full-on character assassination of Miliband by the monstering press has begun: from the Daily Mail – otherwise unconcerned by third world exploiters – delving into the provenance of feminist T-shirts , to the lie that he only put coppers in a beggar’s bowl. Tories issue preposterous claims about Labour’s uncosted spending – while Cameron offering gigantic tax cuts out of thin air goes unchallenged.

That’s how it will be from now on, a press even more vindictively anti-Labour, spurred on by Miliband’s anti-Murdoch stand. Expect no fair hearing. Labour policies need to shout clarion-clear to be heard at all. Of all of these, a pledge to bring low pay up to the living wage should be Labour’s standout symbol for respecting the value of work.