Chancellor Sajid Javid has declared the Tories are the “real party of labour” as he announced plans to raise the National Living Wage up to £10.50 per hour by 2024.
In his speech at the Conservative Party conference in Manchester, Mr Javid hailed “a well-earned pay rise” for four million British workers.
The chancellor also revealed the age threshold for entitlement to the National Living Wage will be brought down from 25 to 21.
“To help the next generation of go-getters to get ahead we will reward the hard work of all millennials too,” he said.
Currently, the National Living Wage is set at £8.21 per hour and those under the age of 25 are only entitled to the lower national minimum wage.
Mr Javid told Conservative Party members the Treasury, under his orders, will set a new target for the National Living Wage to match two-thirds of median earnings.
When the National Living Wage was first introduced in April 2016, the government asked the Low Pay Commission to set the level with the target of reaching 60% of median earnings by 2020.
Mr Javid, who failed in his attempt to be elected Conservative leader earlier this year, told his party’s conference: “The hard work of the British people really is paying off.
“It’s clear it’s the Conservatives who are the real party of labour. We are the workers’ party.”
Treasury sources said the move would mean four million workers are £4,000 per year better off compared to the current position.
They added the National Living Wage would have risen to £9.45 per hour in five years’ time without the changes.
And, although they admitted there would be an impact on the public sector wage bill as a result of Mr Javid’s action, the sources stressed it would not be a “big number” and the Treasury is “not particularly worried” about the changes costing jobs.
The National Living Wage will be extended to 23-year-olds from 2021 and 21-year-olds within five years.
But Labour’s shadow chancellor John McDonnell claimed workers would benefit more, and sooner, under his party’s plans.
He said: “This pathetic attempt at catch-up by the Conservatives will fool nobody.
“Labour will introduce £10 as a minimum as soon as we take office and, rising with living costs, it will mean everybody over 16 years of age will be earning comfortably more than £10.50 an hour by 2024.”
The Federation of Small Businesses expressed concern that, without government help, some firms could go bust due to the National Living Wage changes.
The group’s national chairman Mike Cherry, said: “While it is welcome that the chancellor is giving businesses five years to adapt, this increase will leave many small employers struggling and, without help, could make some small firms unviable.
“Those in sectors with tight margins and which are heavily labour-dependent, such as the care sector, retail or hospitality, will be particularly badly hit without support.
“Four in 10 small employers say operating costs are rising due to employment costs.
“The chancellor must now find ways to help those smaller businesses to meet his ambition, without deterring them from expanding and hiring more employees.”
At the beginning of his speech, Mr Javid, the son of Pakistani immigrant shopkeepers, spoke in Punjabi to welcome his mother in the audience.
The chancellor said: “Twenty years ago Mum thought it was a big deal when she watched the first Asians move into Coronation Street, here in Manchester.
“Well, now she’s watched as the first Asians move into Downing Street.
“Once again, we’re living above the shop. And I’m so happy to make her proud.”
Mr Javid also used his speech to unveil a “Brexit red tape challenge to help identify EU regulations that we can improve or remove”.
“Liberating our entrepreneurs, small businesses and consumers from the burden of overbearing bureaucracy, wherever we see it,” he added.
He also announced a new £500m Youth Investment Fund to “roll out youth centres and services right across our country helping millions more young people get on the conveyor belt to a better life and career”.
And Mr Javid hailed a “new infrastructure revolution” as he outlined a multi-billion pound programme for broadband, roads and buses.
He insisted the UK would be ready to leave the EU, with or without a deal, on 31 October and claimed that the “number one concern” of businesses and international investors was not Brexit but the “agenda of the Labour Party”.
Taking aim at Mr McDonnell’s own headline conference announcement, during his speech in Brighton last week, Mr Javid added: “Given how much damage they’d do every single day they’re in office, I’m glad they say they would only be working four days a week.”