Minimum wage to rise but 1% hike for young falls behind inflation

The minimum wage for young people is to rise by 1%, less than the rate of inflation, amid an on-going row over rewards for top executives and bankers at bailed-out banks.

The business secretary, Vince Cable, faced severe criticism from Labour last year after freezing the minimum wage for anyone under 21.

He announced on Monday that the national minimum wage is to rise by 12p an hour for adults to £6.31 from October, while the rate for 18- to 20-year-olds will rise by 5p to £5.03, and by 4p to £3.72 for 16- and 17-year-olds.

A recommendation from the Low Pay Commission that the rate for apprentices be frozen was rejected and the rate is being raised by 3p to £2.68 an hour. Cable said the lower rise for the young was "recognising the higher unemployment rates amongst young people".

The business secretary was speaking at the Institute of Directors, whose chief, Simon Walker, attacked the "greed" of those demanding rewards for failure and again attacked Barclays for paying out three times more in bonuses than dividends to shareholders.

Walker also said it was "mad" that members of the boy band One Direction had earned £5m each last year but that it was up to shareholders to crack down on top executive pay. Cable said he agreed with much of what Walker had said.

Cable said it was important that both the apprentice rate and the youth rates kept pace with increases in benefits which are rising by 1%.

Conservative minister Matthew Hancock had last month talked about strengthening the minimum wage so that there was an incentive between being on benefits and earning.

Amid a debate about freezing or even cutting the minimum wage, the TUC general secretary, Frances O'Grady, said: "Boosting the incomes of the low paid goes straight into the economy and wage-led growth must be part of the recovery, so we would have liked to have seen minimum wage rates go up further today, even if the government has rightly rejected calls for a freeze.

Cable indicated he would "be more radical in taxing wealth" after the top rate of tax was cut to 45% from 50%.

He said there would be a crackdown on "abuses of the minimum wage". He pointed to the cash economy of unrecorded wages, restauranteurs making assumptions about tips and other employers making deductions for uniforms.

A minimum wage for 16- and 17-year-olds was first introduced in 2004. In London there is a "living wage" campaign for £8.30 minimum an hour.

However, Cable called for a debate about the living wage campaigns which could result in regional differences. He said the living wage campaigns needed to be "grounded in evidence rather than based on rhetoric and political point scoring".

O'Grady called for the government to spread the living wage to the public sector so "millions would benefit".