The Chancellor George Osborne has called for a big rise in the minimum wage to encourage people into work and compensate those on low-incomes for the economic crisis.

He said increasing wages will “make sure that we have a recovery for all and that work pays”.

But Mr Osborne’s support for higher wages has drawn warnings from business groups who say that increasing employers’ costs could result in job losses and throw the economic recovery into reverse.

The current minimum wage rate is £6.31 an hour but experts at the Treasury have speculated that could rise to more than £7.