Tax cuts mean people are better off despite inflation rising faster than average wages, Prime Minister David Cameron said today.
Labour leader Ed Miliband told MPs the latest economic figures, which show falling unemployment, also found average wages were down £1,600 since the last election.
But Mr Cameron said reductions in public spending meant the Government was able to offer voters tax cuts, which when they were taken in to account meant people were better off than in 2010.
Turning to Mr Miliband, the Prime Minister told the Commons: "Of course, we are seeing a low growth in wages. Why? Because we are recovering from the longest and deepest recession in living memory.
"But because you keep quoting the figure without the tax cuts we have put in place, you are not recognising that actually this year people are better off because we have controlled spending and cut taxes."
Mr Cameron added: " We are cutting taxes for everyone in this country and we are only able to do that because we have controlled spending. What you cannot face is the fact that the economy is improving.
"The fact is today our plan is working. There are 1.3 million more people in work in our country. That is 1.3 million more people with the security of a pay packet. We are securing Britain's future and it would be put at risk by Labour."
His comments came after Mr Miliband claimed many voters were facing a cost of living crisis as inflation continued to rise at a faster rate than wages.
The Labour leader welcomed the latest fall in unemployment to 7.1%. The number of jobless people plunged by 167,000 in the quarter to November - the second biggest fall on record - to 2.32 million, the lowest for almost five years.
The official data shows unemployment is now within touching distance of the level which will be used to decide whether interest rates will increase.
But Mr Miliband said that despite this good news, the data also showed that average wages had fallen.
"Can you confirm that today's figures also show that average wages are down by £1,600 a year since the election, meaning that for many ordinary families life is getting harder?" the Labour leader asked Mr Cameron.
"You come here every week and do your Bullingdon Club routine and all you show is that you have absolutely no understanding of the lives of people up and down this country.
"That is the reality. Ordinary families are working harder, for longer, for less. You are cutting taxes for millionaires and not helping them. The minimum wage is falling in value. You can't be the solution to the cost of living crisis because you just don't understand the problem."
Mr Cameron hit back.
He said : "I think it is important to say what these figures show today, because what they show is that youth unemployment is coming down, long-term unemployment coming down, the claimant coming down, and unemployment overall coming down.
"Above all what we see today is the biggest ever quarterly increase in the number of people in work in our country. There should not be one ounce of complacency - there is still a huge amount to do to get Britain back to work but there are 280,000 more people in work.
"That is 280,000 more people with the security of a regular pay packet coming in for themselves and their family."
The Prime Minister added: " The fact is that we are recovering from the mess you left us. Every week you come here and raise a new problem that you created. We had the betting problem, then we had the banking problem and then we had the deficit problem and now we have the cost of living problem.
"You are like an arsonist who goes around setting fire after fire and then complains when the fire brigade aren't putting out the fires fast enough. Why don't you start with an apology for the mess you left us?"
Asked how the Prime Minister had made the calculation, a Downing Street source said it was based on Office National Statistics figures which show that take home pay has risen faster than Consumer Price Index inflation for the lowest earning 80% over 2012/13.
The source added forecasts from the Office for Budget Responsibility predict that average earnings will rise faster than inflation this year.
A senior Labour source said: "According to the Institute for Fiscal Studies, if you take account of tax and benefit changes, people are £891 worse off since 2010."
Labour later released a statement from the party's Treasury spokesman Chris Leslie, who said: "The Tories are completely out of touch to claim that people are better off under them.
"The truth is that under David Cameron real wages have fallen by over £1,600 and families are on average £891 worse off as a result of tax and benefit changes since 2010. At the same time he's given a huge tax cut to people earning over £150,000.
"David Cameron should come clean about the scale of the cost-of-living crisis under him. But the reality is that he can't be the solution to the cost-of-living crisis because he just doesn't understand the problem."