The hourly national living wage rate for over-25s will increase from £8.21 to £8.72 for 2020/21.
The Low Pay Commission has published recommendations for the new rates, which kick in from 1 April 2020.
The increase to the national living wage in 2020/21 will have a domino effect on the national minimum wage rates for workers under 25.
Workers aged between 21 and 24 will receive a 6.5% pay rise to £8.20 an hour, while employers will have to pay apprentices at least £4.15 an hour.
Chancellor Sajid Javid said:
"This latest rise will mean that since we introduced the national living wage in 2016, the lowest paid will have had a wage increase of more than £3,600.
"We want to do more to level up and tackle the cost of living, which is why the living wage will increase further to £10.50 by 2024 on current forecasts."
Businesses that employ full-time workers on the national living wage will have to absorb increasing costs over the course of 2020/21.
Craig Beaumont, director of external affairs at the Federation of Small Businesses, said:
"This government has promised a reduction in the jobs tax through an increase in the employment allowance.
"With a national living wage increase of this size now on the horizon, it's critical that it delivers this swiftly."
Javid had previously pledged to raise the national living wage for over-25s to £10.50 an hour by 2024.
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