ED Miliband faced a backlash from business leaders after promising to raise the minimum wage “significantly” if Labour wins the next General Election.
The Labour leader claimed there is a “low pay epidemic” in Britain and pledged that over the five years of the next parliament he would move the minimim wage closer to average earnings.
Such a move would be a significant departure from the current system where the Government acts on recommendations from the Low Pay Commission which takes evidence from employers and unions.
Mr Miliband said: “A Labour government will establish a clear link between the level of the minimum wage and the scale of wages paid to other workers in our economy.
“We will say workers on the minimum wage must never be left behind because those who work hard to create our nation’s wealth should share in it.”
But business groups raising wages too quickly could have a damaging impact on the economy.
Simon Walker, director general of the Institute of Directors, said: “Labour are right to push for workers to see the benefits of economic growth, but the minimum wage must not become the subject of a political competition to see who can offer the most, irrespective of what the economy and employers can afford.
“The Low Pay Commission has done a good job of balancing the rate against inflation, economic growth, productivity and the effect rises would have on small businesses and young people.
“In contrast, setting a target linked to average earnings risks seeming a little simplistic. While growth has returned to the economy, productivity remains stubbornly low.”
Mr Miliband was responding to a Labour-commissioned report from Alan Buckle, former deputy chairman of KPMG International, with proposals to overhaul the Low Pay Commission.
The Buckle report said the Commission should have a five-year target on wages and a strengthened role in tackling poverty and raising productivity.
It also called for measures to encourage employers to pay the Living Wage.
Mr Buckle said he believed his “core proposal” of a clear goal to increase the minimum wage over the life of a parliament was achievable and would benefit individuals and business.