Rachel Reeves is to raise minimum wage More than tripling the rate of inflation in a move that will cost employers an extra £6bn.

The Chancellor is expected to increase the minimum wage by at least 5.8 per cent in his budget on Wednesday; This is much higher than the current inflation rate of 1.7 per cent, according to September figures from the Low Pay Commission (LPC).

This would increase the minimum wage from £11.44 to £12.10, adding £1,100 to the annual salary of a typical minimum wage worker, according to Capital Economics.

The expected increase came despite inflation falling by 1.7 percent in September.

Paul Dales, chief UK economist at Capital Economics, said the increase would affect around 5.7 million workers paid at or around the minimum wage.

He added: “This would give you an increase in total wages of just over £6bn.”

But younger workers are expected to get even bigger raises That’s up from the 5.8 per cent set for the wider workforce, as part of Labour’s pledge to end “discriminatory” age ranges for the minimum wage.

Nye Cominetti, chief economist at the Solution Foundation think tank, said: “I expect them to go further for young people… that will definitely happen.”

Currently the minimum wage rate for workers aged 18 to 20 is lower than the rest of the labor market but the Government has said it wants to achieve a single adult wage.

Mr. Cominetti said Ms. Reeves could announce wage increases for 18- to 20-year-olds that are one or two percentage points higher than the national increase. This could mean a wage increase of around 8 percent for young workers.

Higher wage bills will come on top of an expected £20bn rise in employer National Insurance bills as Ms Reeves looks to plug a £40bn black hole in the public finances.

Companies will also have to pay up to £4.5bn a year to cover the costs of Deputy Chancellor Angela Rayner’s Employment Rights Bill. first day rights for workers and the right to extended sick pay.

Tina McKenzie, of the Federation of Small Businesses, said: “Any increase in the NLW must be accompanied by strong Government measures to help small businesses create and sustain jobs.

“Employment Allowance needs a significant increase to help small businesses retain staff and build confidence when recruiting new team members, and to help ease tough choices when it comes to hiring in firms with very tight margins and few options.

“Our research shows small employers face difficult choices as they adapt to increases in the taxes they pay, including for workers on the national living wage. Almost four fifths (79 per cent) of small business employers say Employment Allowance should increase in line with the NLW each year.”

Ms Reeves’ decision to increase the minimum wage will be based on new advice she will receive from the LPC ahead of the Budget.

As part of its manifesto commitment to “make sure the minimum wage is a real living wage”, Labor changed the LPC’s remit so that its recommendations also take the cost of living into account.

To assess the cost of living, the LPC will now include standard of living measurements such as inflation in its calculations.

But economists say this will be a factor ahead of this month’s Budget as inflation has fallen steadily from a 41-year high of 11.1 per cent in October 2022 to 1.7 per cent today, well below wage growth of 3.8 per cent in August. He said it would have little impact.

Eduin Latimer, research economist at the Institute for Fiscal Studies (IFS), said: “The commitment to keep increases in line with the cost of living is only likely to hold in years when inflation will be faster than wage growth.”

In September, the LPC said the minimum wage needed to rise by 5.8 percent to remain at two-thirds of average hourly earnings, the key benchmark for minimum wages.

However, LPC said this figure could be higher. “As earnings growth in 2024 has been stronger than forecast so far, our central forecast may continue to rise for the remainder of the year,” it said in a statement last month.

Mr Latimer warned that an increase in the minimum wage would mean: It will result in higher costs for businesses and push them to raise their prices to cover their bills.

“The evidence so far on minimum wage increases in the UK shows that firms are converting the costs of a higher minimum wage into profits and reflecting these into prices,” he said.

Treasury was contacted for comment.