The national living wage will rise to £11.44 per hour from April.
Chancellor Jeremy Hunt has announced he is accepting the recommendation from the Low Pay Commission – an increase of £1.02 from the current rate of £10.42.
The national living wage is the minimum people aged 21 and over must be paid for their work.
For those under 21, the national minimum wage rates apply.
The changes announced today are expected to impact around two million people.
Mr Hunt said he would be accepting the changes suggested by the commission when he spoke at the Conservative Party conference in October.
Speaking at the time, the chancellor said the increase would be “a pay rise for two million workers”.
“And the wages of the lowest paid over £9,000 higher than they were in 2010 – because if you work hard a Conservative government will always have your back,” he said.
The announcement comes ahead of Wednesday’s autumn statement, where Mr Hunt will update the UK on the state of country’s economy.
Can the chancellor lift the gloom? Watch live coverage on Sky News of the autumn statement from 11am on Wednesday
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