The National Living Wage will increase from £7.20 to £7.50 from April next year, the Chancellor confirmed.
The figure – recommended by the independent Low Pay Commission – is 10p lower than some had been expecting because average wages have been lower.
However, it will still be the equivalent of a pay rise worth over £500 a year to a full-time worker.
The Treasury said Mr Hammond's package was designed to "improve the living standards of ordinary working class people and their families", in line with the ambitions set out by Prime Minister Theresa May in her speech to the Conservative conference last month.
Katherine Chapman, director of the Living Wage Foundation, an independent body which sets a higher voluntary rate for a living wage, said: "We welcome any pay rise for low-paid workers, especially now in these uncertain times with speculations about food and other prices set to rise."
"The reality, however, is that a fifth of UK workers aren't paid enough to live on. There's still a gap between the Government minimum and our real Living Wage of £8.45 in the UK and £9.75 in London, which is based on what families need to earn to meet everyday costs."
"We encourage as many businesses who can to join our movement of 3,000 UK employers who are going further to pay a real Living Wage because a hard day's work deserves a fair day's pay."
In September, Labour's John McDonnell has pledged that a Labour government would introduce a living wage that would likely be more than £10 an hour.
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