Britain’s lowest-paid workers have been handed a pay rise of nearly 10% after ministers approved the largest increase in the national living wage since it was introduced in 2016.

The increase is seen as a huge boost in the battle against the cost of living, but will put more pressure on businesses that are struggling with rising costs.

A new minimum rate of £11.44 per hour – up from £10.42 – will be introduced from next April and represents a pay rise of more than £1,800 a year for a full-time worker.

Chancellor Jeremy Hunt has accepted the recommendation from the Low Pay Commission and the Department for Business and Trade says about 2.7 million workers will benefit directly.

The minimum wage for an apprentice will also increase, with the rate for an 18-year-old apprentice rising by more than 20%, from £5.28 an hour to £6.40.

Mr Hunt said the increases “will end low pay in this country” and will deliver on a Conservative manifesto pledge.

“The national living wage has helped halve the number of people on low pay since 2010, making sure work always pays,” he said.

“We now need to build on its success to drive up wider working conditions for low-earners in terms of job security and access to holiday and sick pay.”

Laura Suter, head of personal finance at the investment platform AJ Bell, said the rise will be a big boost for the lowest paid, but may upset the Bank of England governor who has warned about the impact of wage rises on inflation.

“This larger-than-expected rise will be a big boost to many people’s earnings,” said Ms Suter.

“It’s a pay rise of £1,856 a year for someone working full time on the minimum wage and will take their annual salary to £20,820 a year.

“This increase comes off the back of a near-10% increase last year and means that over the space of two years the minimum wage will rise by almost £2 an hour, having been at £9.50 as recently as April 2022.”

She said the timing of the announcement may mean the Chancellor Jeremy can wake up to some glowing headlines about rising wages for the lowest earners on the morning of Autumn Statement day.

“Once again the government hasn’t been shy about releasing big changes ahead of the actual statement to the house – a move that will put the chancellor in the bad books with the speaker.

“Another person who may not be overjoyed at this news is the governor of the Bank of England, Andrew Bailey, who reiterated today that the fight to get inflation back to 2% isn’t over.”

Ms Suter said the government is clearly confident this is not a substantial risk, but it does add more pressure on hard-pressed businesses and that could see more help in the Autumn Statement.

“The move to increase the minimum wage puts more of a cost burden on businesses – while the government sets the rate, it’s businesses around the country that actually pay it.

“This sizeable increase might be the strongest hint yet that some tax breaks for businesses are due to be announced in the Autumn Statement – to help balance the increased costs from these rising wages.”

Autumn Statement: what to expect

The Chancellor is expected to cut national insurance, inheritance tax and stamp duty, and offer more tax reliefs for business to help stimulate growth.

Full expensing — the offsetting of investment spending on plant and machinery against corporation tax liabilities — could be extended beyond the three years allowed for when the policy was announced last year, or be made permanent.

Bumper tax revenues have helped to shave £11.4 billion from the government’s borrowing bill over the past six months.

However, Mr Hunt is urging caution ahead of his announcement. On Sunday he told Sky News: “The one thing we won’t do is any kind of tax cut that fuels inflation. We’ve done all this hard work. We’re not going to throw that away.”

A decision is likely on whether to uprate pensions by the full 8.5% rate of wage growth in September or by a lower rate which would save the Treasury billions. A potential rabbit to be pulled out of the hat would be to announce a deal on the state pensions of women born after 1955 who have claimed they were denied their full payments.

Whisky taxes may rise, while tourism and hospitality businesses are hoping for some further help, not least the reinstatement of VAT relief for visitors.