The Community Investment Coalition (CIC) said Britain continues to stand out among comparable advanced economies as having 21% of workers that are low paid.
London is distinct from other regions in having more workers earning below a living wage, 16%, than below the low pay threshold (12%).
More than four million individuals are borrowing from lenders with very high interest rates (typically 450%-2,500% APR), trapping them in a spiral of increasing debt.
Debt advice charity Step Change identified London as one of five cities that experienced the biggest rise in average payday loan debts in the last two years.
The London Assembly’s Economics Committee has launched an investigation into low pay and the London Living Wage.
In its evidence to the committee CIC said high-cost credit problems are the cause of mental health problems, create barriers to employment, and have negative impacts on local economic growth.
CIC’s Damon Gibbons said:
“We welcome the London Assembly’s investigation into low pay and the London Living Wage.
“Low pay and the rising cost of basic household items such as fuel and food has led to a significant squeeze on household budgets.
“Households unable to access affordable financial services and struggling to make ends meet often have little option but to use high-cost credit to cover the deficits in their budgets.
“The Mayor’s championing of the London Living Wage has highlighted the need for employees to be paid a more realistic minimum rate. But much more is needed.
CIC has called for the London Assembly and Mayor to encourage all parts of the public sector, which employs 950,000 people in London, to pay the London Living Wage and ensure that companies delivering contracts or sub-contracts on behalf of the public sector do the same.
The coalition also wants a ban on adverts for high-cost credit on all public transport and computer systems; additional powers for London Boroughs so that they can stop the proliferation of high cost credit stores, and a major publicity campaign across the capital to encourage Londoners to join their local credit union.
CIC also called for an agreement with major banks to increase their support for credit union and Community Development Finance Institutions (CDFIs) across London, including by providing access to payment systems and providing capital investment.
“The impacts of high cost credit lending are felt all around us,” said Mr Gibbons.
“It is increasing the pressure on health and public services and sucking money from our poorest communities.
“The Mayor needs to pull together an effective strategy to stop its expansion and provide affordable alternatives.”