Chancellor George Osborne has signalled that the minimum wage will be raised to £7.
He said positive economic signs meant Britain could now “afford” the inflation-busting increase from £6.31.
The announcement represents a major U-turn by the Conservatives, who opposed Labour’s decision to introduce the minimum wage in 1998, warning it could lead to the loss of about 2million jobs.
Mr Osborne chose to reveal the move on the eve of a keynote speech by Labour leader Ed Miliband on the UK’s “cost of living crisis”.
The chancellor said: “Because we are fixing the economy, because we are working through our plan, I believe Britain can afford an above-inflation increase in the minimum wage so we restore its real value for people and we make sure we have a recovery for all and that work always pays.”
The Low Pay Commission has the final decision and will make its recommendations on the level of the minimum wage in February. Any upgrade would be expected to take effect in the autumn.
CBI director-general John Cridland said: “An unaffordable rise would end up costing jobs and hit smaller businesses in particular. Any increase in wages must reflect improved productivity.”
Trade unions said the rate should rise further to match the “living wage” set at £7.65 for the UK, except London where the figure is £8.80. TUC general secretary Frances O’Grady said: “We welcome George Osborne’s acceptance of the TUC’s case for an above-inflation rise in the minimum wage.”
Chris Leslie, Labour’s shadow chief secretary to the Treasury, said: “George Osborne is flailing around under pressure but he has made no concrete announcement about the level of the minimum wage.”
SNP MSP Annabelle Ewing said: “Instead of vague hints from a Tory chancellor who has eroded the minimum wage year on year, the promise in an independent Scotland is that we will establish a Fair Work Commission – drawn from business, trades unions and wider society – and that the minimum wage will rise by at least the cost of living every year.”