LONDON (Reuters) - More than a million British workers were given a pay rise on Friday as a higher minimum wage came into force, an economic experiment that fed in to a tense political debate on whether the country should leave the European Union.
Finance minister George Osborne last year announced a series of increases in the wage that will make it 13 percent higher than it would otherwise have been by 2020.
He hopes the change will boost productivity and make work more rewarding than welfare. But businesses in the typically low-paying hospitality, retail and social care sectors have said they might cut staff in response.
A government minister who wants Britain to leave the European Union said on Friday the increase would make Britain more attractive for foreign workers at a time when net migration is running far above the government's target.
Britain holds what is shaping up to be a closely fought referendum on its membership of the bloc on June 23.
The country's independent budget forecaster, the OBR, estimates the wage increase will result in 60,000 fewer jobs and increase business costs by around 1 percent of corporate profits.
A survey last year by the Recruitment and Employment Confederation (REC) said concerns among employers had already contributed to a slowdown in hiring.
But a separate survey by the Centre for Macroeconomics, a research body, found more than half of 37 leading economists it questioned saw no significant hit to jobs.
Osborne, whose political standing has been hurt by two U-turns on planned cuts to welfare payments in recent months, said the change would mean workers aged over 25 and on the minimum wage would get a bigger increase in annual pay than any of their counterparts in the world.
Under the first increase, the minimum wage rose to 7.20 pounds ($10.31) an hour on Friday, up from 6.70 pounds.
"The National Living Wage will help firms by addressing historic weaknesses in the British economy," he wrote in The Sun newspaper. "Low wages mean little investment in the skills of too many of our workers."
Britain first introduced a national minimum wage under Labour prime minister Tony Blair in 1999, when business leaders warned it would ramp up costs and force companies to hire fewer workers.
Those fears proved wide of the mark, but culture minister John Whittingdale told the Times newspaper the new increase would act as a magnet for more migrants unless Britain took control of its borders with a vote to leave the EU.
"Wages in the UK will be so much higher than the rest of Europe," he said.
The minimum wage has been used by an increasing number of countries in a bid to boost economic growth, with Germany introducing it in 2015 and Japan announcing plans to increase its version.
Reporting by Kate Holton; editing by William Schomberg and John Stonestreet