Trade unions demanded a living wage for all workers yesterday after the government announced an overdue but derisory 3 per cent boost to the minimum wage.

The national minimum wage (NMW) is to increase by 19p an hour to £6.50 later this year.

Crowing Business Secretary Vince Cable said: "This will benefit over one million workers on national minimum wage and marks the start of a welcome new phase in minimum wage policy."

But general union Unite general secretary Len McCluskey said an increase closer to the living wage level of £7.65 should have been implemented.

He said: "This timid rise in the minimum wage is proof that this government cowers at the feet of big business in the midst of a cost-of-living crisis.

"To make matters even worse, George Osborne cruelly held out hope that the rate would rise to £7.

"Raising the national minimum wage to the living wage level alone would improve the government's finances to the tune of £1.35 billion and would grow the economy by £3.15bn."

Unison union general secretary Dave Prentis repeated the call: "The government should have had the courage to step up and meet that target."

He added: "Across the country people are struggling to make ends meet. The sooner we move to a living wage the better.

"The real winners today will again be payday loan sharks who prey on working people unable to bridge the financial gap between what they earn and what their families need to survive."

The government said it had accepted recommendations by the Low Pay Commission, including future plans for bigger increases than in recent years.

The increase was the first real-terms rise in six years. A worker on the adult rate, working a 36-hour week, will get an extra £355 a year from October.

Low Pay Commission chairman David Norgrove claimed that as long as the economy continued to grow there would be "progressive real increases" in the NMW.

But he said: "The labour market position of young people has yet to improve to match that of adults, although it now appears to have stabilised."