Minimum wage rates are to increase next year, giving a pay rise for millions of workers, the Government has announced.

Chancellor Rachel Reeves said she had accepted recommendations from the Low Pay Commission so that those on low incomes are “properly rewarded” for their work.

From next April the National Living Wage will rise by 4.1% to £12.71 an hour for eligible workers aged 21 and over, which the Government said will increase gross annual earnings of a full-time worker on the rate by £900, benefiting around 2.4 million low-paid workers.

The National Minimum Wage rate for 18 to 20-year-olds will increase by 8.5% to £10.85 an hour, narrowing the gap with the National Living Wage.

This will mean an annual earnings increase of £1,500 for a full-time worker, which the Government said marks further progress towards its goal of phasing out 18 to 20 wage bands and establishing a single adult rate.

The National Minimum Wage for 16 to 17-year-olds and those on apprenticeships will increase by 6% to £8 an hour.

The Chancellor said: “I know that the cost of living is still the number one issue for working people and that the economy isn’t working well enough for those on the lowest incomes.

“Too many people are still struggling to make ends meet, and that has to change.

“That’s why today I’m announcing that we will raise the National Living Wage and also the National Minimum Wage, so that those on low incomes are properly rewarded for their hard work.

“These changes are going to benefit many young people across our country, getting their first job.”

The increases will benefit a total of 2.7 million young and older workers, said the Government, adding that by seeking expert and independent advice, it was able to ensure that the right balance is struck between the needs of workers, the affordability for businesses and the opportunities for employment.

The Chancellor said that in tomorrow’s Budget, she will deliver the Government’s mandate for change, adding that she was determined to cut the cost of living for everyone.

TUC general secretary Paul Nowak said: “The Government is delivering on its promise to make work pay.

“With living costs stubbornly high, an above-inflation pay rise will make a real difference to the lowest paid.

“Putting more money in people’s pockets is good for workers and good for the economy as it goes straight back into our high streets and local businesses.”

Baroness Philippa Stroud, who chairs the Low Pay Commission said: “The recommendations published today are a product of diligent study of the evidence, careful reflection and significant negotiation.

“Our advice balances the Government’s ambitions with the need to protect the economy and labour market, with rates that are fair and realistic.”

Kate Nicholls, who chairs UKHospitality, said: “Increases to minimum wage rates are yet another cost for hospitality businesses to balance, at a time when they are already being taxed out.

“These additional costs make action at the Budget to reduce hospitality’s tax burden even more important, especially if businesses are expected to sustain this level of annual wage increase.

“Hospitality businesses have reached their limit of absorbing seemingly endless additional costs. They will simply all be passed through to the consumer, ultimately fuelling inflation.”

Katherine Chapman, director of the Living Wage Foundation, said: “The boost to the legal minimum wage is a really positive move that will ease some of the pressure on low paid workers hit by sharp price rises over the last year.

“It will still fall short of the voluntary real living wage which is the only wage rate based solely on the cost of living.”

The real living wage is currently £13.45 an hour in the UK and £14.80 in London.

Ross Holden, the GMB union’s head of Research and Policy, said: “A much-needed pay rise keeping pace with cost of living is fantastic news for millions of low-paid workers across the country.

“As well as lifting people out of poverty pay, it’s more cash in people’s pockets to spend on their high street, boosting local economies and growth.

“GMB has long campaigned for ‘wages not based on ages’ – and the higher increase for young workers looks like another positive step towards equal pay for equal work, no matter your age.”

Jane Gratton, deputy director of public policy at the British Chambers of Commerce, said: “People are at the heart of every thriving business, and employers want to ensure their workforce is happy, engaged and well paid.

“However, every above-inflation wage increase leads to higher business costs, lower investment and fewer opportunities for individuals. Making employment more expensive risks deepening the jobs crisis among young people.

“There’s a limit to how much additional cost employers can bear without something having to give.

“With unemployment rising, the Government needs to use tomorrow’s Budget to ease cost pressures for business. Crucially, there must be no new tax increases for businesses.”