- Low Pay Commission recommends rise from £6.31 for over-21s
- Signals it could be just the start of further, faster increases
- Chancellor George Osborne says workers should 'enjoy fruits' of recovery
The minimum wage is to rise from £6.31 to £6.50 under plans announced by the Low Pay Commission
The minimum wage is to rise by 3 per cent to £6.50, adding an extra £370-a-year to the pay packets of millions of workers.
The inflation-busting rise is the first for five years and follows George Osborne’s call for workers to be rewarded as the economic recovery gains momentum.
And the Low Pay Commission said it was just the start of a ‘new phase’ which would take the rate to new record highs.
Ministers claim the £6.31 hourly rate for adult workers has been outstripped by the rising cost of living and is now worth the same in real terms as in 2004.
Since 2010 the main rate for over 21s has risen by just 38p, amid fears that sharper rises would have meant firms laid staff off.
Mr Osborne last month suggested it could eventually reach £7-an-hour, which is what it would be if it had risen in real terms since the financial crash.
The Chancellor said low paid workers must now 'enjoy the fruits' of the economic recovery, with an inflation-busting increase from the current level of £6.31.
The rate is set by the LPC, which today wrote to Business Secretary Vince Cable to recommend a rise from £6.31 to £6.50 in October this year.
The letter said: ‘We do believe however that the economic recovery should this year allow an increase in the real value of national minimum wage, the first increase for at least five years.
‘So we are recommending that the adult rate should increase by 3 per cent on 1 October compared to consensus CPI forecast of 2.3 per cent.’
It means the number of jobs covered by minimum wage is likely to rise by over a third to around 1.25million.
Business Secretary Vince Cable said: 'If the recommendations are implemented, and I stress they are recommendations, there would be a real increase in the minimum wage, for the first time since the financial crisis - the biggest cash increase since 2008.
'What the Low Pay Commission has also agreed - with the remit I provided last autumn - is to look at the long term path, how we maintain increases in value, and if conditions in the economy continue to improve, that will be possible.'
Since 2005 the minimum wage has risen by just a few pence, despite soaring inflation leaving workers worse off in real terms
In an interview last month, Mr Osborne told the BBC: 'I think Britain can afford a higher minimum wage.
'I think we have worked hard to get to this point and we can start to enjoy the fruits of all that hard work.
'I believe Britain can afford an above-inflation increase in the minimum wage so we can restore its real value for people.'
He insisted the exact figure would be set by the Low Pay Commission.
But he added: 'If for example the minimum wage had kept pace with the rate of inflation, it would be £7 by 2015-16, it’s £6.31 at the moment. So that’s an increase.
'I think we can see an above inflation increase in the minimum wage, and do it in a way that actually supports our economy, precisely because the economy is recovering and many, many jobs are being created.'
Chancellor George Osborne has argued workers should enjoy the fruits of the economic recovery
The LPC insisted that the rise to £6.50 was only the start, and further, faster increases were likely in the near future.
The letter added: ‘Provided the economy continues to improve we expect to recommend further progressive real increases in the value of the minimum wage, restoring and then surpassing its previous highest level so that 2014 will mark the start of a new phase - of bigger increases than in recent years - in the work of the commission.’
TUC General Secretary Frances O’Grady said: 'This is a welcome increase in the minimum wage, which starts to recover some of the ground it has lost since 2008.
'We hope this is the first in a series of bolder increases that will give real help to the low paid, and not just a pre-election boost.'
The independent Low Pay Commission takes evidence from businesses and employees across the country before setting the annual increase in the minimum wage.
Government sources stressed that the LPC’s letter was only a recommendation.
But to date ministers have only twice over-ruled the Commission, including last year when the rate for apprentices rose by more than the body recommended.
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