Labour has drawn up plans to put hundreds of pounds into the pockets of the lowest-paid by instructing the Low Pay Commission to factor in living costs when it sets the minimum wage.
They also want to scrap the lower pay categories for workers aged between 18 and 22, so that everyone would be paid at the higher rate.
The minimum wage is set at £9.50 an hour for those aged 23 and above, £9.18 for 21- and 22-year-olds, and £6.83 for workers between the ages of 18 and 20.
The proposal to help tackle the cost of living crisis comes after the party announced a £29bn plan to freeze the energy price cap this autumn.
With inflation soaring to a 40-year high of 10.1% – heaping more pain on households as the cost of food, energy and fuel increase – pressure will grow on the government to follow suit.
In a joint article for the Guardian, the deputy Labour leader, Angela Rayner, and the shadow chancellor, Rachel Reeves, write: “Poverty pay doesn’t just cause financial misery; it undermines many of the things that matter in life. Being compelled to accept every bit of overtime or take an extra part-time job to pay the bills comes at a cost to relationships and mental health.
“That’s not sustainable and it’s not the standard of living we should tolerate in Britain.”
The Low Pay Commission’s remit currently requires it to consider the link to average wages as well as wider economic conditions when it decides how much workers should be paid.
But under a Labour government, the body would also be asked to set the minimum wage at a level that covers the cost of living. This would apply to all workers aged 18 and over, including those who are now on a lower rate.
Reeves and Rayner say: “Young adult workers are still getting a raw deal on pay. Their bills aren’t any cheaper, but they have to make ends meet with less. That’s just not fair.”
The Labour MPs say households are struggling not just as a result of the cost of living crisis, but because of a decade of squeezed pay under the Conservatives. About two-thirds (68%) of working-age adults in poverty live in a household where at least one adult is in work, according to the Joseph Rowntree Foundation.
There are big regional disparities in the proportion of people paid the minimum wage, with 8.2% of workers aged 16 and over on it in the north-east and just 3.8% in London.
Although Labour is not calling for regional rates, instead proposing a single UK-wide statutory minimum wage, it has not ruled this out as a future policy.
The party has not said how much the minimum wage could be expected to increase by under its plan to take the cost of living into account.
However, the Living Wage Foundation, which encourages UK employers to voluntarily adopt a higher rate of £9.90 an hour, makes its calculation based on the cost of a basket of household goods and services.
If Labour’s minimum wage were to be set at the same level, it would mean a worker aged 23 or above taking home an extra £832 a year, based on a 40-hour week. Those aged between 21 and 22 would get almost £1,500 more, while those aged between 18 and 20 would earn more than £6,000 more a year.
At last year’s Labour conference, members voted in favour of a £15-an-hour minimum wage amid a row over the policy – but the party’s official position remained to call for an increase to at least £10 an hour.
