New blow for companies as Rachel Reeves is ready to announce a mega inflation-busting hike within the minimal wage throughout the Budget

Rachel Reeves is set to announce an inflation-busting rise in the minimum wage, in a fresh Budget blow to businesses.

Government sources said the Chancellor would use Wednesday’s Budget to unveil a ‘significant’ rise in what will be rebranded the ‘new living wage’.

The move comes on top of a planned increase in employers’ National Insurance and will fuel fears that the Budget could persuade firms to delay or even cancel hiring decisions.

In a speech today, Sir Keir Starmer will insist that the Budget is part of a plan that will ‘change the long-term trajectory on British growth for the better’.

The Prime Minister will make the case for big tax rises, saying it is time to ’embrace the harsh light of fiscal reality so we can come together behind a credible, long-term plan. It’s time we ran towards the tough decisions, because ignoring them set us on the path of decline.’

But last night, the PM was facing a growing backlash from business over planned tax hikes, which firms say will hit jobs and growth.

Rachel Reeves is set to announce an inflation-busting rise in the minimum wage, in a fresh Budget blow to businesses

Government sources said the Chancellor would use Wednesday’s Budget to unveil a ‘significant’ rise in what will be rebranded the ‘new living wage’

The Low Pay Commission, which advises the Government on the level of the ‘living wage’, has previously projected that the minimum could rise by 3.9 per cent next April – double the rate of inflation – which would take it from £11.44 an hour to £11.89.

But government sources indicated the final figure will be higher as the quango will now be using a new mandate handed to it by Ms Reeves in the summer, which will require it to take greater account of the cost of living.

The move comes on top of plans to raise employers’ NI by between one and two per cent in a £20 billion raid on business.

Ms Reeves yesterday insisted she would produce a Budget for ‘strivers’. But Education Secretary Bridget Phillipson caused further anger when she declined to say whether small business owners on modest incomes qualified as ‘working people’, a phrase that has had Labour figures, including the PM, in a muddle for a week.

She told the BBC that she would meet the Government’s definition, despite a salary of more than £160,000, saying: ‘My income derives from my job, and I’ll pay whatever taxes are required of me.’ 

But she refused to say whether a small business owner making an average net profit of £13,000 a year would be covered by the protection from tax rises.

The Federation of Small Businesses said the rise in NI alone would increase the cost of hiring the average worker by £600.

Executive director Craig Beaumont, said the rise would be ‘a tax on pay, hours and jobs which would lead to recruitment freezes – or worse’. He added: ‘Small business owners are among the hardest working people imaginable. 

Keir Starmer (pictured in Apia, Samoa) insisted next week’s fiscal package would ‘rebuild’ services and the economy

They are strivers, working long hours to run their business and in many cases create jobs and opportunities.’ 

Labour’s election promise that it would not raise taxes on working people was yesterday replaced by a ‘payroll pledge’ that workers will not see immediate rises in deductions from their pay cheques after the Budget. 

But the more limited pledge leaves open huge scope for stealth taxes and levies on business as Ms Reeves seeks to raise an extra £35 billion in tax.

In his speech today, the PM will argue that more state resources are needed to tackle ‘an economy riddled with weakness on productivity and investment’.

Ms Reeves is set to tear up her ‘fiscal rules’ to allow her to borrow up to £50 billion to invest in infrastructure and growth sectors.

Jittery financial markets have already pushed up the cost of government borrowing amid fears about the scale of the government’s plans.

Former Bank of England governor Mervyn King warned the move could push up mortgage rates if Ms Reeves fails to convince financial markets that the scale of borrowing is justified.

New research from the CBI yesterday predicted that a tax raid on British family businesses could see the UK lose out on £29billion and around 400,000 jobs.