From April 2021, the National Living Wage will increase by 2.2% from £8.72 to £8.91 an hour, and will be extended to 23 and 24-year-olds for the first time. Previously the rate was only paid to employees aged 25 and over.

The reduction in the National Living Wage age threshold follows a review of the structure of the National Minimum Wage youth rates and recommendations made by the Low Pay Commission in autumn 2019. The threshold will further reduce to 21 by 2024.

Bryan Sanderson, chair of the Low Pay Commission, said: “Recommending minimum wage rates in the midst of an economic crisis coupled with a pandemic is a formidable task. The difficulty in looking forward even to next April is daunting. There are strong arguments concerning both low-paid workers – many performing critically important tasks – and the very real solvency risks to which small businesses are currently exposed. In these unprecedented conditions, stability and competence are prime requirements.

“Our value as a social partnership is to use the imperfect economic evidence to produce a recommendation which is professionally researched and dispassionate. Most importantly, after much debate it has the support of the business, trade union and academic representatives who make up the commission. We have opted for a prudent increase which consolidates the considerable progress of recent years and provides a base from which we can move towards the government’s target over the next few years.”

The government says that the increase in the National Living Wage will mean that low paid workers’ incomes rise broadly in line with predicted wage growth; and modestly ahead of projected increases in prices, meaning low-paid workers’ living standards should be protected.

A full-time worker on the National Living Wage will see their annual earnings increase by £345 next year.

Sunak said that compared to 2016 when the policy was first introduced, the rises in the National Living Wage equated to a pay rise of more than £4,000.

Richard Churchill, a partner at tax and advisory firm Blick Rothenberg, said: “Increasing the National Minimum wage should be supported but this is an additional cost for many businesses in the hardest hit sectors of retail and hospitality. The chancellor needs to acknowledge that this is contradictory to job preservation and creation and ensure support is given to these businesses to ensure there is simply not just less jobs.”

In its 2019 manifesto, the government committed to ensure that the National Living Wage will reach two-thirds of the median wage by 2024.

But last week the Centre for Policy Studies warned that raising the National Living Wage would cost jobs.