LONDON Chancellor George Osborne said on Thursday that Britain's minimum wage could rise by more than inflation, a move that may help him counter an opposition pre-election strategy focused on falling living standards.
"Because we're fixing the economy, because we're working to our plan, I believe Britain can afford an above-inflation increase in the minimum wage to restore its real value for people," Osborne told BBC television.
As Britain's political parties start to position themselves for the May 2015 election, the Conservative-led coalition has come under attack from the Labour party, which says Britain is in the grip of a cost-of-living crisis.
Labour leader Ed Miliband is due to make a speech on the economy on Friday.
Earnings in Britain have lagged behind inflation since the financial crisis, which pushed the country into recession.
Osborne told the BBC that the hourly minimum wage would need to rise to 7 pounds by 2015 for workers aged over 21, up from 6.31 pounds now, for its value to return to its level before the financial crisis.
A non-governmental panel is due to give a recommendation on this year's increase in the minimum wage in the coming weeks. The recommendation needs the approval of the government.
The change is due to come into effect in October.
Osborne said an increase in the minimum wage would be neutral for public finances, which he is trying to return to surplus before the end of the decade.
But some of Britain's biggest business groups expressed concern at the prospect of a big increase in wages.
"We understand the political pressure to tackle this issue, but economic reality must be the driver for any such policy," said James Sproule, chief economist at the Institute of Directors. He said a rise in the minimum wage should be offset by lower employment taxes for companies.
Across the economy as a whole, 3.7 per cent of jobs were paid at or below the minimum wage in April 2011, according to the Low Pay Commission, which recommends its level.
Labour said it had called for an above-inflation rise in the minimum wage last year.
"George Osborne is flailing around under pressure but he has made no concrete announcement about the level of the minimum wage," said Chris Leslie, a finance spokesman for Labour.
($1 = 0.6119 British pounds)
Our top photos from the past week.