Ahead of Wednesday’s Budget, the Chancellor confirmed that minimum wages will rise in April, with hourly pay for over-21s rising to £12.21 per hour.

Rachel Reeves said the pay rise was an “important step” towards delivering on the promise of a “real living wage” for workers.

There will also be an increase in the minimum hourly wages of employees and apprentices aged 18-20.

The government said more than three million workers would benefit, but firms warned the high cost could mean they would have to cut back on hiring.

• The minimum wage for over-21s, officially known as the National Living Wage, will rise by 6.7% from April 2025, from £11.44 to £12.21. This year it rose from £10.42 to £11.44 per hour.
• The minimum wage for 18 to 20-year-olds will rise from £8.60 to £10. In April this year the rate was increased from £7.49.
• Apprentices will receive the biggest pay rise of between £6.40 and £7.55 per hour. Before this year the figure was £5.28

The Treasury said a major increase in the minimum wage for under-21s – the largest increase on record – was a first step towards a single rate for all adults.

This comes after the government instructed the Low Pay Commission, which recommends minimum wage rates, to include living costs in its calculations.

National Living Wage and National Minimum Wage rates are set by the government each year, with the new rates coming into force the following April.

Nye Cominetti, chief economist at the Solution Foundation think tank, said the increase was “good news” for low-income earners, but the 77 percent increase for workers over 21 was smaller than in each of the last two years.

But he said this small increase was “sensible” in the context of the expected increase in National Insurance contributions for employers in the budget.

Business owners, especially smaller ones, have expressed concerns about the impact of higher wage bills and workers’ rights reforms.

Christine Dobson Moore, owner of Sanwitches Cafe in Sabden, near Burnley, said her firm was currently struggling to pay its staff.

“It’s quieter than it used to be, to be honest,” he said. “Most politicians haven’t lived in the real world, they’re not us.”

Kate Nicholls, chief executive of trade group UK Hospitality, said businesses will approach the Budget with “even more trepidation” after the minimum wage increases were announced.

“Trying to balance the pocketbooks of high street businesses will leave hospitality as collateral damage, threatening jobs, future investment, price rises for consumers and the viability of the business,” he said.

Nick Mackenzie, boss of pub chain Greene King, told the BBC’s Today programme that the increase in the minimum was “slightly higher than we had envisaged”.

But he stressed that what was “critical” for the sector was the “cumulative impact” of rising costs for businesses.

Asked whether rising costs for higher wages and taxes would lead to redundancies and less investment, Mr Mackenzie said: “If you keep adding costs to business then that’s going to happen.”

But Paul Nowak, general secretary of the Trades Union Congress, said: “Every time the minimum wage rises there are voices predicting that it will increase unemployment. They are wrong every time.”

Claire Reindorp, chief executive of the Young Women’s Trust, also backed the rise, saying women “are more likely to work in low-paid jobs, so they have been on the sharp end of the financial crisis in this country for too long.” .

There is speculation about the tax rises Labor will announce, with Reeves claiming there is a £22bn “gap” in the public finances that needs to be addressed.

National Insurance, which employers pay in addition to the wages they pay, is one of several taxes expected to be paid. It was increased by the chancellor to increase funding for public services, including the NHS.

Employers currently pay a rate of 13.8% on a worker’s earnings above £175 per week.

But Reeves is also expected to lower the threshold for employers to start paying taxes. The combination of the two measures is expected to raise around £20bn.

This move is thought to be the Budget’s biggest revenue booster.

It has also raised questions about the possible knock-on effect of the government saying growing the UK economy is a top priority.

Businesses have warned that imposing extra costs on themselves will make it harder to invest, hire staff and create jobs.

In some cases, firms may pass on increased costs to customers through higher prices, but workers’ wage increases may be constrained as employers seek savings.

Melanie Pizzey, chief executive of the Global Payroll Association, the industry body for payroll professionals, suggested businesses could limit wage increases for workers earning more than the minimum wage as they try to keep costs down.