Image copyright AP

Labour leader Jeremy Corbyn's proposal to penalise firms who do not pay the Living Wage has been described as "unworkable" by his business spokesman.

Angela Eagle told The Sunday Times the plan to ban such firms from paying dividends was "not a runner".

The idea was criticised as "silly" by Labour economic adviser David Blanchflower, in the New Statesman.

Shadow chancellor John McDonnell said the criticisms would be taken on board in the party's policy review.

Mr Corbyn floated the idea of banning profitable firms who "depend on cheap labour for those profits" from paying dividends to shareholders in a speech earlier this month.

Image copyright BBC News Image caption Angela Eagle said Mr Corbyn's idea was unworkable

Ms Eagle, who heads Labour's National Policy Forum, said companies should be encouraged to act more fairly, but "a ban on dividends is not the way to do it".

She told The Sunday Times: "It is an interesting idea, but it does not actually work."

'Learn fast'

Asked to respond to her comments on the BBC's Sunday Politics, Mr McDonnell said "that's why it's open for discussion".

The government is set to increase the current minimum wage, which rose to £6.70 an hour last year, to a £9 an hour for over 25s by the end of the decade.

It will be rebranded as a National Living Wage, but Labour argues it will still be below the level full time workers need to afford a decent standard of living.

Image copyright BBC News Image caption Lord Mandelson said Labour lacked 'credible' policies

Mr McDonnell said he planned to bring in a legally enforceable "real living wage" when Labour came to power.

"But in the meantime, we want to campaign with shareholders so that they pressurise their companies to abide by a real living wage and I think there is an alliance to be built there," he added.

Responding to criticism from David Blanchflower, who is a member of Labour's economic advisory panel, Mr McDonnell said "we will listen to his advice and take it on board".

Mr Blanchflower said the new Labour leadership had to "learn fast" about the realities of capitalism and stop suggesting "silly stuff" such as the dividends ban.

'Declaration of war'

In a separate development, Lord Mandelson has accused Jeremy Corbyn and his supporters of declaring war on "decent Labour party members" who do not share their values.

He denied there was a civil war going on in the Labour Party but said many of those who back Mr Corbyn are now wondering if he is up to the job.

The former minister, who served in government under two Labour prime ministers said he thinks Jeremy Corbyn is "unsupportable" by the public, and is failing to put "fear" into the Conservatives.

Speaking to BBC South West, he said: "People sense that we just don't have credible policies and certainly not a leader they'd like to see as prime minister.

"And certainly if we fight the election in 2020 as we are now then my fear would be that we would face a very disappointing result.

"But there's time to go between now and then. And time for the party to make up his mind what it wants to do."

He added: "For Jeremy Corbyn and his supporters to turn around and say for people who disagree with them, that they are just Tories, that's not just insulting, that is actually very divisive, and a declaration of war by them on many decent Labour party members who share Labour party values."