The campaign to ensure workers receive the living wage will be given a boost today when a local authority will offer cuts in business rates to employers who agree to pay it.

Labour-run Brent Council in London plans to give companies a one-off discount of up to £5,000 if they pay their employees the living wage, which is worth £9.15 an hour in London and £7.85 outside the capital – higher than the £6.50-an-hour national minimum wage.

Brent would become the first authority to offer the incentive under a plan to be discussed by its Cabinet in January. Some 25 Labour councils already pay the living wage to their workers and a Labour government would offer financial incentives to firms to follow suit. The wage has been adopted by more than 1,000 employers voluntarily, helping 35,000 workers.

The move by Brent comes in Living Wage Week, in which campaigners are pressing more bosses to pay the rate. It is estimated that about 30 per cent of Brent residents currently earn less than the living wage and could get pay rises of around £2.50 an hour if companies sign up to the deal. Some 200 businesses could benefit from lower business rates.

Councillor Roxanne Mashari, lead member for employment and skills at Brent Council, said: “Paying the living wage is not only good for business, as it incentivises staff and helps to recruit and retain the best people, but it is also good for the individual and for society.”

Rachel Reeves, the shadow Work and Pensions Secretary, said that if Labour wins power next May, so-called make-work contracts would give firms who agree to pay the living wage a 12-month tax rebate of up to £1,000, or an average of £445 for every worker who gets a pay rise.

Writing on The Independent’s website, Ms Reeves said: “It’s a good deal for businesses who will be able to use the incentive to invest in the equipment or training they need to shift to a more productive, higher wage business model. And it’s a good deal for taxpayers because of the lower social security spending, higher tax revenues and stronger economy that results.”

She argued that ground-breaking Labour councils were being let down by the Government’s failure to tackle “the national scandal of low pay”. The number of workers paid less than the living wage has risen from 3.4m to 4.9m since 2010, she said, costing taxpayers an estimated £1.1bn a year in higher benefits and tax credits and £2.4bn a year in lost tax revenue. “We can’t afford to go on like this,” she said.

Rhys Moore, director of the Living Wage Foundation, said: “Brent Council is really pioneering with this idea. If the policy is implemented, it will be the first local authority in the country to financially incentivise businesses to become a living wage employer. I hope Brent can set the standard and other authorities will follow their excellent example in implementing policy initiatives to show their commitment to the living wage.”

Time for a change: Living wage adopters

Barclays Dominic Johnson, employee relations director, said: “This isn’t just something we do because it makes commercial sense We want to make a positive contribution to society.”

Standard Life Sandy Begbie, group operations officer, said: “Being a living wage employer has supported us in attracting high-quality candidates who want to stay.”