The national minimum wage (NMW) will rise to £6.50 a hour from 1 October 2014, the government said today after it accepted the Low Pay Commission's (LPC) recommendations.
The LPC argued that the rise was likely to increase the real value of the minimum wage "for the first time in five years", although business groups warned that "significant" rises in the future could harm small businesses.
The rise means the rate for people aged 21 and over rises by 3% or 19p from the current £6.31 a hour. This is far higher than the previous year's 1.9% rise, which took the hourly rate from £6.19 to £6.31.
Younger earners will see a smaller increases of 2%. The apprentice rate rises to £2.73 an hour (from £2.68), the rate for under-18s rises to £3.79 (from £3.72), and the rate for those aged 18-20 will now be £5.13 (from £5.08).
David Norgrove, chair of the Low Pay Commission, said: "We have again examined all the evidence very carefully. We believe that the economic recovery should allow an increase in the real value of the minimum wage.
"Our recommendation that the adult minimum wage should increase by 3% is likely to increase its real value for the first time for at least five years.
"Provided the economy continues to improve we expect to recommend further progressive real increases in the minimum wage, so that 2014 will mark the start of a new phase – of bigger increases than in recent years.
"We believe that youth rates should rise by more than adult rates when economic circumstances permit."
The LPC said the rise in the minimum wage to £6.50 an hour would increase someone's gross weekly income by £6.65 to £227.50 a week, if they worked a 35-hour week.
After tax, the net weekly income for a single person would rise by £4.98 to £221.26; for a two-children family, net income would rise by £6.87 to £409.52.
John Allan, national chairman of the Federation of Small Businesses, warned that such high increases in the minimum wage in the future could harm small businesses.
"While the rise to £6.50 is slightly more than we would have hoped for, it is at least only 1% over inflation," he began. "At this stage of the recovery, it is important that business momentum is maintained. If the rate were to increase by a significantly higher margin next year, it would place substantial pressure on small businesses operating on fine margins."