Chancellor George Osborne wants an above-inflation rise to the minimum wage and is targeting a huge increase to £7 an hour.
In an interview with the BBC today, Osborne says the minimum wage would need to rise to £7 an hour to equal where it once stood in real terms, instead of today’s rate of £6.31.
The minimum wage is set by the Low Pay Commission to balance the interests of business with low paid workers. Osborne has written to the body to ask how far it could raise the hourly rate.
The move will be seen as a Conservative pitch for votes of the working poor at the next election and a response to Labour’s criticism there is a cost of living crisis in Britain today.
The Trades Union Congress has said a higher minimum wage would wipe billions off the cost of in-work benefits such as tax credits.
But Osborne says any resulting cut to the welfare bill would be wiped out by lower business profits and smaller corporate tax receipts. It would also create higher Treasury spending on pensions tax relief.
He said: “The working poor are the people who suffer most when the public finances get out of control, when the economy collapses. When the banking system isn’t properly regulated. Our Government, the Government I am part of, has got on top of these problems.
“And the whole country benefits and I want to make sure the working poor benefit as part of it. I want to make sure we are all in this together as part of the recovery. Which is why I want to see those above inflation increases in the minimum wage, precisely because the British economy can now afford that.”
Inflation fell to 2 per cent in December, the first time it has hit the Bank of England target since November 2009.
Labour leader Ed Miliband has called for tax breaks for firms to offer a living wage of £7.65. He has floated the idea of imposing a higher minimum wage in different sectors such as financial services.
Confederation of British Industry director general John Cridland says: “An unaffordable rise would end up costing jobs and hit smaller businesses in particular. Any increase in wages must reflect improved productivity.”