British pound sterling street
David Cameron said that the minimum wage will rise by 20p to £6.70 an hour in October (Reuters)

More than one million low paid workers in the UK will be handed an inflation-busting pay rise in October when the government increases the minimum wage to £6.70 per hour.

Prime Minister David Cameron revealed that the government had agreed to the independent Low Pay Commission's recommendation to increase the minimum wage from £6.50 ($9.63, €9.08) to £6.70 an hour.

The 3% rise, well above the latest Consumer Price Index (CPI) inflation rate of 0.3%, represents the largest real-terms rise in seven years.

"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," Cameron said.

"That's what today's announcement is all about, saying to hardworking taxpayers 'this is a government that is on your side.' It will mean more financial security for Britain's families and a better future for our country."

The move will also see the minimum wage rate for apprentices increase by 20% to £3.30 an hour, up from £2.73.

But the Trades Union Congress (TUC), which represents trade unions in the UK, argued that the hikes were not enough for low-paid workers.

"For the low-paid to get a fair share of the recovery, this was a year in which we could have had a much bolder increase in the minimum wage," said Frances O'Grady, the general secretary of the TUC.

"With one in five workers getting less than a living wage, this is nowhere near enough to end in-work poverty. Britain's minimum-wage workers should be very fearful of the billions of pounds of cuts to government help for the low-paid that the Chancellor is planning if re-elected."

Likewise, Labour argued that the rise was not enough, citing George Osborne's aspiration for a £7 an hour minimum wage.

"This 20p rise falls far short of the £7 minimum wage promised over a year ago. Ministers have misled working families who have been left worse off," said Chuka Umunna, Labour's shadow business secretary.

"Where under Cameron we've seen the value of the minimum wage eroded, we need a recovery for working people."