By Anushka Asthana, Political Correspondent
The minimum wage will rise by 20p to £6.70 an hour this October, benefiting 1.4 million low-paid workers.
David Cameron and Nick Clegg have announced the Coalition has accepted the 3% rise recommended by the Low Pay Commission (LPC) for all workers aged over 21.
The shift represents the largest real-terms increase in the rate since 2008 but is not enough to restore the rate to its value before the financial crash.
The Trades Union Congress said the low paid workers in line for an increase were also those who had been hardest hit by Coalition cuts.
Labour said it fell "far short" of the £7 hinted at by George Osborne as the level needed to put the minimum wage back on track in real terms.
The Chancellor did say at the time that it would be up to the independent LPC - made up of employers, unions and academics - to set the actual rate.
The Coalition has also accepted the commission's call to raise the level for younger workers over 18 by 17p to £5.30, and for 16 and 17-year-olds by 8p to £3.87.
But it has gone further when it comes to the pay of apprentices.
The LPC suggested a 2.6% increase to £2.80.
Instead ministers are increasing the level by 57p to £3.30 - which is the first step in an ambition to complete a £1 rise in the rate.
The minimum wage is a sensitive issue because of pressures from both the left and right.
When it made this latest recommendation, the LPC said: "We have carefully weighed the risk of doing too little to raise the earnings of the lowest paid against the risk of recommending more than business and the economy can afford."
For politicians the issue is clearly important because of the nearing election.
Labour has long criticised the Coalition for a situation in which inflation outstripped wages, but that trend has reversed more recently.
David Cameron has called on employers to "give Britain a pay rise" following the improved economic situation.
Today, he added: "At the heart of our long-term economic plan for Britain is a simple idea - that those who put in, should get out; that hard work is really rewarded; that the benefits of recovery are truly national."
Mr Clegg said it was one of many ways in which to create a "fairer society".
He said: "Whether you're on low pay or starting your dream career through an apprenticeship, you will get more support to help you go further and faster."
But Chuka Umunna, the shadow business secretary, said: "Ministers have misled working families who have been left worse off.
"Where under David Cameron we've seen the value of the minimum wage eroded, we need a recovery for working people."
Labour has promised that the level will rise to £8 by 2020, but there has been a suggestion that the real-terms rate could be higher than that by then.
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