Giving low-pay workers more holidays and a guaranteed increase in wages would provide the British economy with a productivity boost.

That's the message from thinktank New Economics Foundation (NEF), which claims that driving up the spending power of lower-earning consumers would increase demand for products and services – in turn providing UK businesses a greater incentive to raise their productivity.

NEF has published a report, called Time for Demand,, in which it claims that, across time, productivity increases have been closely associated with rising pay and leisure time for workers.

As a result, NEF is calling for faster increases in the minimum wage and an increase in statutory paid holiday.

NEF proposes that, from 2020, the Low Pay Commission is given a new mandate to recommend increases in the national living wage so that rates reach par with the UK’s average real living wage by 2025.

"Increasing minimum wages are a particularly efficient way of boosting demand because workers on minimum wages are far more likely to spend rather than save any increases in salary, compared with higher-income individuals," the report reads.

Another proposal is to set up an external body to make independent recommendations to government on regular increases to annual statutory leave entitlement, on a similar basis to the work currently done by the Low Pay Commission on minimum wages.

“For more than 10 years now, economists and policymakers have sought to solve the UK’s productivity crisis from the ​‘supply-side’ – intervening to change the way we make goods and deliver services in the economy," said Alfie Stirling, head of economics at NEF.

"It hasn’t worked. Average productivity, wages and living standards have experienced their worst decade in almost two centuries.

“It is increasingly clear that weak demand has been an overlooked problem. The issues include many that are deep and structural, ranging from austerity and high levels of inequality to an ageing population and uncertainty over the UK’s trading future. With or without Brexit, the policy response needs to be equally transformative.

“Raising demand by putting more cash in the pockets of the UK’s poorest workers, while giving people more paid time off from work to spend it, should now be part of a radical mix of options for any government that is serious about increasing productivity in a way that works for people and society.”

As well as increases in pay and holiday, the report suggests three other major initiatives.

These are to frontload public investment for a ​‘green transformation’ to transform the economy to a zero carbon; An increase in public spending on services in the next Spending Review; and an increase in the generosity of social security through new ​‘weekly national allowance’ (WNA) – worth £2,500 per year for most adults.

To download and read the full Time for Demand report, click here.