The Government will introduce a national living wage paying £9 an hour by 2020.
In his Budget speech today, Chancellor George Osborne announced the living wage will be compulsory for working people aged 25 and over.
It will start next April at the rate of £7.20 an hour.
The Low Pay Commission will recommend future rises that achieve the Government’s objective of reaching 60 per cent of median earnings by 2020.
The OBR estimates the cost to businesses will amount to 1 per cent of corporate profits.
Osborne said this will be offset by a cut in corporation tax from 20 per cent to 18 per cent in 2020.
He said: “Two and a half million people will get a direct pay rise.
“Those currently on the minimum wage will see their pay rise by over a third this Parliament, a cash increase for a full time worker of over £5,000.
“In total it’s expected that six million people will see their pay increase as a consequence.
“And taken together with all the welfare savings and the tax cuts in this Budget, it means that a typical family where someone is working full time on the minimum wage will be better off.”