The DTI has announced the new national minimum wage rates, which will apply from October. More than one million people receive the minimum wage.

Based on recommendations from the Low Pay Commission, the main rate will rise from £5.35 per hour to £5.52. The rate for 18-21 year-olds rises from £4.45 to £4.60 and for 16-17 year-olds it will go up from £3.30 to £3.40.

The announcement means that the minimum wage has gone up by almost 30 per cent more than inflation since it was introduced in 1999.

The CBI welcomed the increase, saying 2007 is not the year for “unaffordable wage increases”.

CBI deputy director-general John Cridland said: “The CBI had called for business to receive some relief this year. The minimum wage increase has exceeded average earnings growth since 2003, causing it to have a disproportionate impact in sectors such as retail and hospitality, and undermining pay and employment policies within many firms.

“These same businesses have faced big increases in energy and pensions costs, and for many this October will see an increase of four days’ paid holiday.

“The minimum wage has brought real benefits to many lower paid workers, but it is right that this year’s increase took account of business reality.”

But the TUC said the Low Pay Commission should have been “bolder” in setting the new rate to keep the minimum wage rising faster than pay overall.

TUC secretary general Brendan Barber said: “There is still scope to continue raising the wages of the lowest paid compared to the rest of us without ill effects.

“The minimum wage in the UK remains a big success story. We have gone from having no minimum wage to one of the highest in the world.”