The minimum wage for those aged 21 years and over will rise by 6.7% to £12.21 – with pay for those aged 18 to 20 set to go up by 16.3% to £10 an hour.

Chancellor Rachel Reeves has confirmed the increases ahead of Wednesday’s budget, and they will take effect from April 2025.

The government says a full-time worker aged 21 and older will earn an extra £1,400 a year with the increase to what is known as the national living wage.

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Minimum wage workers – those between 18 and 20 – are getting a greater proportional increase as part of government efforts to create in the future a single minimum rate for all adults instead of the current tiered system.

Their pay bump from £8.60 per hour to a flat £10 means a full-time worker will get an extra £2,500 in a year, the government says.

Ms Reeves said: “This government promised a genuine living wage for working people. This pay boost for millions of workers is a significant step towards delivering on that promise.”

Deputy Prime Minister Angela Rayner said: “A proper day’s work deserves a proper day’s pay.

“Our changes will see a pay boost that will help millions of lower earners to cover the essentials as well as providing the biggest increase for 18-year-olds on record.”

The announcement of the increases, which are based on recommendations from the Low Pay Commission, comes ahead of a budget in which the government says it will ensure “working people don’t face higher taxes in their payslips”.

Sir Keir Starmer has confirmed there will be tax rises in the budget to prevent a “devastating return to austerity” and rebuild public services.

The Low Pay Commission is an independent body that advises the government, although its remit is set by the government of the day.

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The jump in the base wage rates and the expected increase to employers’ national insurance contributions in the budget have raised concerns about how businesses will be impacted with the new demands on their wage bills.

Many expect the national insurance rise to filter through to less take home pay for workers.

John Foster, chief policy and campaigns officer at the Confederation of British Industries, said the pressure of rising minimum wage rates would “make it increasingly difficult for firms to find the headroom to invest in the tech and innovation needed to boost productivity and deliver sustainable increases in wages”.

The increase to the national living wage is lower than over the past two years, with those aged 21+ seeing their wages go up by more than 9% each year.

However, the increase for younger members of the workforce is much greater.

Apprentices and those under 18 will be getting an 18% increase, with a pay bump from £6.40 to £7.55 an hour.

Business Secretary Jonathan Reynolds said: “Good work and fair wages are in the interest of British business as much as British workers.

“This government is changing people’s lives for the better because we know that investing in the workforce leads to better productivity, better resilience and ultimately a stronger economy primed for growth.”

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The government says the pay increases mean 3.5 million people will get a pay rise next year.

Baroness Philippa Stroud, the chair of the Low Pay Commission, said: “The government has been clear about their ambitions for the national minimum wage and its importance in supporting workers’ living standards.

“At the same time, employers have had to deal with the adult rate rising over 20% in two years, and the challenges that has created alongside other pressures to their cost base.

“It is our job to balance these considerations, ensuring the NLW provides a fair wage for the lowest-paid workers while taking account of economic factors.

“These rates secure a real-terms pay increase for the lowest-paid workers. Young workers will see substantial increases in their pay floor, making up some of the ground lost against the adult rate over time.”

Paul Nowak, the general secretary of the Trades Union Congress, said: “The government is delivering on its promise to make work pay.

“This increase will make a real difference to the lowest paid in this country at a time when rents, bills and mortgages are high.”

He added that “young workers deserve to be paid the fair rate for the job”.

“But hundreds of thousands of young workers are currently suffering a huge pay penalty – because of an outdated and discriminatory system,” he said.