The national minimum wage is to increase by up to 6% next year, with more than 1 million low-paid workers in line for a pay rise, the Guardian understands.
Rachel Reeves is expected to announce an increase above inflation and even higher than what had been predicted last month. Ministers, who will herald the rise as good news for working people, said that 18- to 20-year-olds ought to eventually be paid the same as older workers, according to a recommendation first reported in the Times.
About 1.6 million people are in line to receive the “national living wage” of £11.44 an hour, the minimum wage for those 21 and over – rising to more than £12.12 after ministers promised to “raise the floor” on wages.
However, businesses are warning that the expected rise will be announced alongside an increase in the national insurance contributions they must pay on wages.
The national living wage must not drop below two-thirds of median earnings, ministers have told the Low Pay Commission. The target was set by the Tories and achieved this year after almost 10 years of above-inflation increases.
The commission said last month that it expected to recommend an increase of 5.8% but a source confirmed that the final figure could be up to 6%.
Nye Cominetti, the principal economist at the Resolution Foundation, said: “Millions of low earners are set for good news in the budget when the chancellor announces the latest rise in the minimum wage.
“A bigger surprise is the expected increase in employer national insurance contributions. As a result of the two together, some businesses will legitimately say that their wage costs have gone up quite a bit as a result of this budget,” he added.
Tina McKenzie of the Federation of Small Businesses said: “It is businesses that pay people’s wages, plus all the tax government charges on top, which must be factored in when deciding on the living wage rate.”
However, Paul Nowak, general secretary of the TUC, said: “At a time when the cost of living is still very high the lowest paid would really benefit from a decent increase in the minimum wage. We know that low-paid workers spend more of their cash in their local economies. So any increase in their spending power will benefit local firms too.”
He added: “Every time the minimum wage goes up there are some voices who predict this will drive up unemployment. Every time they are wrong.”
A Treasury spokesperson said: “We do not comment on speculation around spending decisions or tax changes outside fiscal events.”
