Forget the unnaturally skinny models you saw at London Fashion Week last month. And forget the teenage girls who starve themselves to look like them. The real fashion victims are workers in poor countries making cut-price versions of catwalk clothes for retailers in Britain.

A report by the charity War On Want, issued in December 2006, found that employees at clothing suppliers in Bangladesh's capital, Dhaka, were regularly working 80 hours each week for 5p an hour, in "potential death-trap factories" where emergency exits were often locked. The clothes they were making were destined for the aisles of Asda, Tesco and Primark.

While it's true that 5p goes a lot further in Bangladesh than it does in the UK, it's by no means enough to lift  people out of poverty. It equates to around £16 a month—well below the £22 that War on Want says is a living wage. A follow-up article by a Dhaka-based reporter in the Guardian described how the factories "disgorge thousands of workers into huge slums, constructed of bamboo, tin and concrete above fetid inky-black lakes".

Asda, Tesco and Primark are all members of the Ethical Trading Initiative and have all pledged their commitment to the payment of a living wage and to a 48-hour week. So what's going wrong?

"We found six factories in Dhaka that supply Asda, Tesco and Primark with low-cost clothes, and interviewed 60 workers—10 in each factory," says John Hilary, campaigns and policy director for War On Want. "We got a clear picture that the voluntary codes to which companies sign up to are not being observed."

One problem is a flawed monitoring system. When inspectors go into the factories they can be misled. Geoff Lancaster, head of external affairs for British Associated Foods, Primark's parent tells Director: "We try to refine our systems and improve them so they are robust, but if someone sets out, illegally, to cover up the situation, then it's very hard for us. If we do find transgressions in our audit then a re-audit takes place—unannounced, in order to optimise the effect of the audit. But auditing is an imperfect science."

War On Want accepts inspections can be difficult but argues that retailers could do more. "The workers we spoke to say the factories are given plenty of advance warnings [of audits]," says Hilary. "They told us a few trusted employees would be lined up who would know what to say when speaking to the auditors. It makes a mockery out of the system... Even spot checks can be so cursory that they fail to pick up these issues. It is hard to get to the bottom of the situation; we've had to establish the trust of the workers for this report, and they fear for their jobs every time they open their mouths. It's not an easy job, but then they [UK retailers] have not really been trying, which is why we compiled the report. Retailers are perfectly aware of what's going on—we met with Asda last year and the company told us it had the situation under control." (Asda was unable to comment at time of going to press. But parent company Wal-Mart's president and CEO, Lee Scott, recently announced plans for a new ethical sourcing initiative this year.)

Mark Charnock, a retail analyst at Investec Securities, believes that retailers haven't done enough over the past 10 years. "In some ways, they have almost gone backwards. If you choose to base your factory halfway across the world, then you can't keep an eye on it all the time."

Nonetheless, companies (particularly listed firms) have a duty to manage the risks of offshore outsourcing. So how could they do more? Martin Hearson, campaign co-ordinator for pressure group Labour Behind The Label, believes it comes down to economics. "The underlying causes are the business models of these companies—and unless they address these, they won't achieve the changes they claim to want. Falling [high street] prices are clearly incompatible with trying to raise wages in supply factories," he says. Lancaster defends Primark's strategy, saying that its low prices are not necessarily about low pay. "We buy in huge bulk," he says. "We buy direct through the factories, cutting out the middleman, and we don't do any advertising at all. This saves us millions of pounds per year."

But Hearson maintains the downward pressure on retail prices is unhealthy. "Over the past decade, there has been relatively little progress. The worst offenders are those companies pushing down prices, because they are forcing other companies to do the same."

Julia Hawkins, a spokesperson for the Ethical Trade Initiative (ETI), agrees. "Constantly squeezing prices has an impact further down the line," she says. "Questions need to be asked." The ETI also highlights the problem of ever-shorter lead times. The requirement for catwalk copies to hit the streets and supermarkets within weeks inevitably puts more strain on the factories and their workers.

Nonetheless, both Hearson and Hawkins acknowledge that, while there's still a long way to go, there have been improvements. Retailers, for example, now generally accept they share responsibility for what is happening with their supply workers. "There's a greater understanding among factory managers of what is required from them. In the past, there wasn't a written code of conduct—now most companies take steps to communicate what they want from their suppliers," says Hearson.

And companies are at pains to eliminate the most heinous abuses; child labour, for example, is much rarer. "Suppliers are now very aware that, if they employ child labourers and get found out, there will be very serious consequences," explains Hearson.

Gap and Nike, which were at the centre of a sweatshop scandal in 2000 when the BBC's Panorama found child workers at one of their suppliers in Cambodia, now co-operate actively with the "cause". "They are the leaders in their field," says Hawkins. "They've gone on record saying 'yes, we have problems' and have published the names of top-tier suppliers on their websites."

Not everyone is so transparent. In a recent campaign entitled Let's Clean Up Fashion, Labour Behind The Label highlighted concerns about the wages supply workers are paid, the lack of access to trade unions and the fact that retailers are "turning a blind eye"—that their codes of conduct are more PR tools than serious efforts to improve the situation. As part of its report, it published a list of the companies that co-operated with the campaign—and those that didn't.

Companies in the good books included Gap and Next, but even the best were damned by faint praise: "While they still have a long way to go, they seem to be engaging more seriously with the issues we have raised."

Choosing not to engage with Labour Behind The Label is not necessarily proof that a company doesn't care. But, says Hearson: "We are concerned that a lack of transparency with us indicates a lack of engagement with the issues in general. If someone is serious about developing best practice then they would have been working with someone who knows what they are doing—in which case, we would hear about it. If what they do is any good, we would know. If we don't, it will mean it's all been done by suits sitting in London and will be of little real value to the workers."

The fact that Gap and Nike cleaned up their acts after media exposure suggests that this can be a the potent force for change. But will low-income families in Britain really turn their backs on £3 jeans and £35 coats? The budget clothing retailers are meeting a need—and they've inevitably got trapped in a vicious circle of "me-tooism". Richard Perkins, director of retail research at Mintel, says: "It's hard for Tesco—it's up against Asda and Primark, with their very low entry costs of goods. The question is, can it afford not to have similarly cheap products? It's also a case of whether the risk of adverse publicity is worth taking for these cheap products. The answer is 'up to a point'."