‘It will price jobs out of existence’, Reeves warned over plan to raise national living wage

The Chancellor is expected to confirm a rise in the national living wage of around four per cent, from £12.21 to at least £12.70, in a bid to meet her pledge to raise living standards.

She will also vow to extend he living wage to Brits aged between the ages of 18 and 21 in order to meet her promise of raising "the floor" on wages, it is understood.

But business leaders have told The Times the move could spark backlash after firms were already dealt what they branded a “perfect storm” of a living wage rise in the last budget, as well as hike in the employer’s national insurance contributions.

Kate Nicholls, head of the trade body UKHospitality, warned: “Businesses are already struggling to absorb all the costs from last year, two successive years of significant minimum wage rises and crucially NICs [national insurance contributions]. We have seen 100,000 jobs lost as a direct result of that.

“If you want fair pay, you have got to have sustainable businesses. If you are pricing those jobs out of existence, it doesn’t matter how high the minimum wage goes.

"Businesses simply can’t digest and absorb these costs. It is having real-world consequences on jobs, livelihoods and business viability. It’s the cumulative impact,” she told The Times.

Anna Leach, from the Institute of Directors, agreed that businesses have already been cutting back on hiring since the last Budget and urged against the measure.

She said it did not “make sense for [the minimum wage] to be escalating, particularly for young people, where the evidence we have is that it has damaged employment prospects."

"It would make sense to look at pausing the narrowing of the gap between the youth and the standard minimum wage," she told the paper.

This week, it emerged Ms Reeves is also considering raising income tax in the Budget despite Labour's manifesto pledge to leave it untouched.

During the 2024 General Election campaign, Sir Keir Starmer and Ms Reeves promised not to raise income tax, national insurance (NI) and value added tax (VAT).

At their first Budget in power, Labour were forced to clarify that the national insurance component of the pledge only referred to employees' NI contributions - as they raised the employers contributions rate.

Advisers in the Treasury and Downing Street are reportedly advising that raising income tax may be the only way to raise enough money to rule out further tax rises this Parliament, according to The Guardian.

Ms Reeves has ruled out increasing borrowing and sweeping spending cuts, reportedly leaving her with no choice but the raise taxes.

She reportedly wants to leave £15 illion worth of fiscal headroom, a so-called financial cushion — to prevent the need for more tax rises in the future.

Officials are also torn over which income tax rates to raise - with Ms Reeves said to be considering adding 1 per cent onto the basic rate.

This move would likely spark concerns over the cost of living, because it would hit those on lower wages hardest.

But the decision is complicated by the fact that raising the higher and additional rates of tax would only garner the Treasury about £2billion and £230million respectively.

However, it is still expected to be one of the few cost of living measures in the Budget –other than the scrapping of the two-child benefit cap set to be funded via a tax on gambling firms