Textile manufacturers in Leicester are still underpaying and exploiting workers, despite a clampdown by enforcement bodies and concerted efforts by UK retailers to clean up their supply chains, according to new research by the Low Pay Commission.

Labour abuses in garment factories in the city in the East Midlands have been known for years, but came under the spotlight in 2020, when unsafe working conditions were blamed for the spread of Covid-19 in the city.

Since then, enforcement agencies have made hundreds of inspection visits, while big retailers have sent out auditors to their suppliers, clamped down on subcontracting and developed new costings to reflect compliance with the minimum wage.

The LPC — an independent body that advises the government on the minimum wage — said the sector had clearly changed “substantially” as a result. But its report, published on Monday, also pointed to a clear disconnect between officials’ view that non-compliance in the sector was no worse than in others, when other credible, knowledgeable witnesses believed it to be “widespread and flagrant”.

Bryan Sanderson, the LPC’s chair, called on the government to take “comprehensive action”, adding: “The case of Leicester is not unique. Across the UK, workers in precarious positions face the same obstacles.”

The exact scale of abuses was “impossible to determine”, the LPC said, but non-compliance remained “a serious issue affecting too many workers” and was “going undetected”.

This is partly because most textile workers are too scared of losing their job to complain about working conditions: several told the LPC that employers had threatened to make sure troublemakers would “never work again”, while one said managers coached workers on what to tell inspectors.

Rogue operators also found it all too easy to sidestep scrutiny by simple methods such as under-reporting the number of hours worked for a given amount of pay, or paying the minimum wage but forcing workers to hand back part of their pay in cash to managers, the report said.

HM Revenue & Customs, which is responsible for policing compliance on the minimum wage, also struggles to deal with so-called “phoenixing”, when employers close factories and rapidly reopen them under a new name to avoid investigations.

Retailers’ own efforts have made more of a difference than those of the authorities, the LPC found, partly because private auditors do not have to find positive proof of non-compliance, but can simply warn retailers that certain manufacturers look too risky to deal with.

The LPC said “rigorous” auditing and restrictions on complicated chains of subcontracting had narrowed the scope for abuses, as retailers dropped suspect manufacturers from their supply chains.

This was making the sector both cleaner and smaller, with “a rising risk of lost jobs”, the report said. Manufacturers thought the sector’s future in Leicester was precarious, while campaign groups warned that rogue operators could be pushed further underground.

The LPC said enforcement bodies needed to do more to encourage workers to report abuses; and they had to collaborate better with organisations that workers trusted, such as trade unions and charities. It urged HMRC to set up a process for underpaid workers to nominate a third-party agent to act on their behalf.

Meanwhile the government should legislate to give better protection to those in insecure work; and help them gain the skills and confidence to move job.

HMRC said it had “a range of measures and powers” it could use in tackling phoenixing, with new legislation strengthening its ability to pursue individuals personally when a company had been dissolved. It said it would comment more fully on the LPC’s other recommendations when the report had been published.

A government spokesperson said the UK had “made strong progress in bringing forward legislation to ensure that our employment law keeps pace with the needs of our labour market” and that it took “robust enforcement action” against employers who did not pay staff correctly.