By Jonathan Davies

Business secretary Vince Cable has said the Low Pay Commission has recommended a 3% increase to National Minimum Wage.

It would see minimum wage rise from £6.50 to £6.70 an hour from October. If the government accepts the recommendation, it will be the biggest increase in National Minimum Wage since 2008.

A decision is expected next week.

The minimum wage for 18-20 year olds would rise to £5.30, £3.87 for 16 and 17-year-olds and £2.80 an hour for apprentices.

Labour leader Ed Miliband says his party would raise minimum wage to £8 per hour during the next parliament, if he wins the general election in May.

The Federation of Small Businesses (FSB) has been wary of such an increase, suggesting many small businesses would struggle to pay an £8 minimum wage, leading to job cuts or even businesses going bust. But the FSB has called on the government to accept the 3% recommendation.

John Allan, National Chairman of the FSB, said: “While a 3% increase to the headline minimum wage rate is marginally more than the FSB recommended in its evidence to the Low Pay Commission, most businesses should be able to afford this rise.

“Firms operating in low margin sectors such as wholesale and social care will be the most likely to struggle with the increase, though it is clear that the LPC has taken into account the benign inflationary environment when making its recommendation. That should provide extra scope to raise wages across the economy, though wider pay growth will also require improvements in productivity in order to be sustainable."

Katja Hall, CBI Deputy Director-General, said:
“The [Low Pay Commission] has struck a careful balance. As the economic recovery cements, the Commission has reconciled a desire to reflect this in pay packets while recognising that productivity growth — the key to sustainable pay rises — remains weak.

“We welcome the commitment to review next year’s rise if the improved business environment doesn’t materialise.

“The National Minimum Wage has been one of the most successful policies of our time thanks to the independent recommendations of the Commission, helping many low-paid workers without damaging their job prospects."