Around 1.7 million workers will get a “significant” pay boost when the national minimum wage (NLW) increases from Saturday.
A 92p rise to £10.42 an hour for workers aged 23 and over is equivalent to a near 10% increase, the Resolution Foundation said.
The think tank said the increase is the biggest annual cash rise in the 24-year history of the minimum wage and one of the largest annual percentage rises.
The foundation said the scale of the increase means the lowest-paid workers will enjoy a “rare” real-terms pay boost.
Around 1.7 million workers currently earning up to 5p above the current minimum wage will directly benefit in full from the increase in the NLW, though potentially another five million low-paid workers will benefit indirectly from its ‘spillover’ effects as employers look to maintain differentials between pay bands.
But it said inequality has remained high and largely unchanged, saying action on low pay must be complemented by wider drives on employment, taxes, benefits and housing costs if living standards for low and middle-income families are to rise.
Nye Cominetti, senior economist at the Resolution Foundation, said: “From tomorrow, millions of Britain’s lowest earners are set for a significant pay boost as the national living wage rises by almost £1 an hour.
“This latest rise isn’t just delivering a much-needed pay rise tomorrow, it has transformed earnings across Britain over the past quarter of a century – reversing rising pay inequality and halving levels of low pay.
“But as well as celebrating the success of the national living wage it’s also important to understand its limits.
The TUC said the minimum wage is going up less than inflation and food prices.
General secretary Paul Nowak said: “Everyone who works for a living deserves to earn a decent living, but tomorrow’s below-inflation increase to the minimum wage is not going to lift the pressure on hard-pressed families.
“A large chunk is going to be wiped out by soaring energy bills, and with food prices shooting through the roof, many low-paid workers will not see a positive difference in their spending power.
“It’s time to put an end to low-pay Britain. That means getting the minimum wage to £15 per an hour as soon as possible, and it means introducing industry-wide fair pay agreements so that all workers have a minimum set of pay and rights – starting with social care and the ferries sector.”
The Living Wage Foundation said 12,000 employers already pay the voluntary “real” living wage of £10.90 an hour and £11.95 in London.
Katherine Chapman, director of the Living Wage Foundation, said: “This significant rise in the national living wage is a welcome boost to ease some of the pressure inflation continues to pile onto low-paid workers.
“It remains lower than the real living wage which is based on the cost of living. The good news is we have seen record numbers of employers signing up to pay the higher real living wage to protect their lowest paid staff during these tough times.
The End Fuel Poverty Coalition estimated that the benefits of the first 73 hours of work each month under the updated national living wage will be “wiped out” by the energy bills increase, which also comes in from April 1.
Simon Francis, co-ordinator of the Coalition said: “As employers give people on the NLW pennies, the Government is taking pounds out of their pocket due to the end of the energy bills support scheme.”