Rishi Sunak will increase the National Living Wage by almost 7pc in Wednesday's Budget, putting pay for 2m workers on track to exceed £10 an hour within three years.
The Chancellor is expected to confirm the rise £8.91 to £9.50 an in Wednesday’s Budget. The rate will rise by 82p to £9.18 an hour for workers aged 21 to 22.
The 59p rise for workers aged 23 and over will put the National Living Wage back on track to reach two-thirds of median earnings by 2024 after a smaller 2pc rise this year amid pandemic uncertainty.
The pay boost will be key to Boris Johnson’s hopes of making the UK a high-wage economy, with the Low Pay Commission’s forecasts suggesting the rate will reach more than £10 in 2024.
However, businesses have warned that increasing wages too much will put jobs under threat as many low-paid sectors recover from the Covid blow.
A third of small firms are planning to ramp up prices to pay for a bigger wage bill while 15pc said it would affect hiring, according to a survey by the Federation of Small Businesses.
Its chairman, Mike Cherry, has warned that any pay rise “must be affordable without jeopardising jobs”.
“Small firms are still trying to recover from the pandemic, and the last thing they want to do is to force customers to pay more or make cuts to staffing numbers,” he said.
The increase in the National Living Wage is one of the biggest since it was introduced in 2016. The Low Pay Commission acknowledged the risks of hurting jobs when it made its recommendations for the Wage earlier this year.
It said in April: “Some sectors may be less able to afford increases in the minimum wage than others, whereas others may be seeing pay pressures.”
Worries over pushing pay too high came after the Labour leader, Sir Keir Starmer, refused to support a £15-an-hour wage, triggering the resignation of shadow employment secretary Andy McDonald.
Mr Sunak has also hinted that public sector workers could be given a pay boost after imposing a freeze that did not affect NHS staff and the lowest earning public servants.
He told the BBC’s Andrew Marr Show on Sunday: “We thought that was reasonable and fair. Now going forward, we’ll have to set a new pay policy and that will be a topic for next week’s spending review.”