Minimum wage to be frozen for 20-year-olds

Low Pay Commission advises Vince Cable that raising rate could deter employees

The national minimum wage for workers aged 20 and under is set to be frozen at less than £5 an hour in an attempt to create more jobs for them, the Government will announce soon.

Vince Cable, the Business Secretary, has been persuaded that raising the legal minimum wage for those aged 18 to 20 from the current £4.98 could deter employers from taking people on.

The moves comes as Mr Cable accused Britain's banks of "imperilling" the country's economic recovery.

Mr Cable used a speech in the city last night to describe the "yawning mismatch" between the needs of what he called "productive business" and the ability of the UK financial sector to service those outside the world of the "big corporates".

"We have some of the world's smartest, most creative, financiers, doing brilliantly in the City or Canary Wharf while there are also smart creative British entrepreneurs - or even run-of-the-mill smaller businesses - still struggling to raise finance to operate and expand," he said.

Employers' groups and Conservative MPs have lobbied for a freeze to the minimum wage after the number of jobless 16-24-year-olds passed the one million mark. But the decision, to be announced around the time of the Budget on 21 March, will be attacked by trade unions. The rate for those aged 16 and 17 is likely to remain at £3.68 an hour.

Mr Cable is expected to reject employers' calls for the minimum wage for adults to be frozen at its current £6.08 an hour when it is due to be uprated in October. It normally increases in line with average earnings, currently rising at 2 per cent.

Last night, union leaders warned that the least well off would fall further behind unless the minimum wage keeps pace with prices and earnings for all age groups. Brendan Barber, the TUC general secretary, said: "There has been much debate about the minimum wage and young people, mainly among those who have always wanted it scrapped, but there is no evidence that it has had any adverse impact on jobs. The real reason why firms have not been hiring new workers is because they lack confidence that we have embarked on a sound economic recovery."

In its evidence to the commission, Mr Cable's Business Innovation and Skills Department urged a "cautious and moderate" approach on young workers, warning that their jobs would be more "at risk" from uprating the minimum wage. It warned that employment levels among young workers have not bounced back as quickly as after previous recessions.

The Liberal Democrat Business Secretary angered Tory ministers this week by suggesting that his party would allow George Osborne to scrap the 50p top rate of income tax in his Budget if, in return, he brought in the Lib Dem policy of a mansion tax on homes worth more than £2m.

At Prime Minister's Questions yesterday, Ed Miliband accused David Cameron of breaking his promises to low-paid workers and families receiving child benefit. Mr Cameron denied the charge and defended plans to withdraw child benefit from families with at least one earner paying the 40p rate of income tax. He told the Labour leader: "We have to make savings, so not giving child benefit to the wealthiest 15 per cent of families in our country – of course it is a difficult decision."