The national minimum wage will rise above £5 for the first time from October 2005, trade and industry secretary Patricia Hewitt announced today.

The adult rate of the minimum wage will increase from £4.85 to £5.05 in October 2005 - in line with average earnings - with a further six per cent increase to £5.35 in October 2006.

The rise is in line with the recommendation of the Low Pay Commission, and takes the minimum wage, in 2006, to almost 50 per cent above its 1999 introduction rate.

The latest increases will extend coverage of the minimum wage to 1.3 million workers in October 2005 and 1.4m workers in October 2006. Announcing these increases Hewitt said: "The great news is that well over a million workers will receive a guaranteed pay rise by this October, rising to almost a million and a half people by October 2006.

"The minimum wage has made a real difference to the lives of thousands of low paid workers - particularly women, who make up some 70 per cent of those benefitting. Year on year increases protect some of society's most vulnerable people from exploitative rates of pay.

"Despite predictions to the contrary, the national minimum wage has not affected the job prospects of low-paid workers in the UK. Unemployment is at record low and a record 28m people are now in work."

Hewitt also announced more than £3m has been recovered from bosses who have not been paying the national minimum wage since April 2004. The total amount recovered from employers since the introduction of the national minimum wage in April 1999 is now nearly £20m. The Government will shortly be announcing further measures to tackle serious non-compliant employers.

Kevin Hawkins, British Retail Consortium director general, responded to the hike: "The BRC are pleased the LPC has taken our evidence into account and only recommended an increase of four per cent to the NMW. Whilst this is still an above inflation increase, retailers will be relieved as the two consecutive increases of 7-8 per cent (October 2003/4) are proving very difficult for both larger and smaller retailers to absorb in today's trading conditions.

"Retail sales growth is slow and the current economic climate is generally uncertain. Ill thought out decisions on the minimum wage hit every business hard and we are therefore concerned that the LPC has recommended an increase of six per cent to £5.35 for October 2006.”

He added: "The LPC's recommendations for this October reflect the BRC's concern about the continued impact of the NMW on pay differentials and the Chairman of the Commission has admitted that they do not yet have enough data from the ONS which would enable them to make a final assessment. We therefore urge the Commission to review the recommendation for October 2006 as and when further data is available and in the light of the state of the economy later this year."