A year-long study by the Living Wage Commission recommended a series of "low cost" moves to tackle low pay, by building on the UK's economic recovery.
The commission, chaired by Archbishop of York John Sentamu, said increasing the pay of half a million public sector workers to the Living Wage could be more than met by higher tax revenues and reduced in-work benefits from a similar number of employees in private firms.
Professional service firms such as accountancy, banks and construction companies could boost the pay of 375,000 workers if they agreed to pay the Living Wage, currently set at £8.80 an hour in London and £7.65 elsewhere, compared to the national minimum wage of £6.31, said the report.
The commission said extending the Living Wage depended on the Government adopting a goal to increase the voluntary take up of the higher rate to at least a million more workers by 2020, otherwise families will continue to rely on food banks and "unsustainable debt".
Dr Sentamu said: "Working and still living in poverty is a national scandal. For the first time, the majority of people in poverty in the UK are now in working households.
"The campaign for a Living Wage has been a beacon of hope for the millions of workers on low wages struggling to make ends meet. Low wages equals living in poverty."