The minimum wage could soar to £7 an hour next year, Chancellor George Osborne has signalled.
Mr Osborne said the economy was now strong enough for the current £6.31 rate to rise after being outstripped by steep price increases since the credit crunch hit.
“I think Britain can afford a higher minimum wage,” he told the BBC.
“I think we have worked hard to get to this point and we can start to enjoy the fruits of our hard work.”
The top Tory’s remarks were timed to overshadow Ed Miliband’s speech on tackling greedy bankers.
And they came 24 hours after Conservative and Liberal Democrat MPs voted down a Commons motion calling for the real value of the minimum wage to be restored.
They also triggered a furious coalition row with Lib Dems who have been pushing for a big rise for months but knew nothing about Mr Osborne’s plans to speak out.
Labour and the unions have campaigned for above inflation increases for even longer.
The TUC welcomed Mr Osborne’s call but business organisations reacted with alarm.
Shadow Chief Treasury Secretary Chris Leslie said that Mr Osborne was “failing around” for a way to deal with the cost of living crisis hitting workers.
Labour’s Mr Leslie pointed out that the minimum wage is set by the Low Pay Commission and not Mr Osborne.
The MP said: “he has made no concrete announcement about the level of the minimum wage.
“Ed Miliband and Ed Balls said last year that we need above inflation rises in the minimum wage in order to catch up the lost value over the last few years.
“And both the Tories and Lib Dems voted against Labour’s motion yesterday which called for action to make this happen.
“The Tories cannot hide from the fact that working people on average £1,600 a year worse off since they came to office.”
A senior Lib Dem source stressed that Business Secretary Vince Cable had asked the Commission to look at above inflation increases back in September.
“Osborne’s office dragged their feet on this and blocked any reference to to how we wanted to address the fall in the minimum wage,” the source said.
The minimum wage would be £6.68 an hour if it had kept pace with inflation since 2008, the Resolution Foundation think-tank calculates.
Senior Tories have been urging Mr Osborne to call for a big increase after polls showed that voters think they are only out for themselves and their rich pals.
The Chancellor was still insisting that there should be no “self defeating” rise that hit jobs last week.
He has stressed Conservative hopes that an increase would raise tax and cut the benefits bill were wrong.
But he said: “We are only in a position where we can contemplate an above inflation increase in the minimum wage, because we have taken difficult decisions to fix the British economy.
“The work is not yet half done. We’ve still got difficult decisions to come.
“But it’s precisely because we are creating economic stability, we are creating an environment where businesses can create jobs, that actually Britain can afford an above inflation increase in the minimum wage.”
TUC chief Frances O’Grady said: “We welcome George Osborne’s acceptance of the TUC’s case for an above inflation rise in the minimum wage.
“But while this would help many, the Chancellor should be more ambitious about achieving decent pay rises across the whole of the UK workforce.”
John Cridland, CBI Director-General, said: “An unaffordable rise would end up costing jobs and hit smaller businesses in particular.
“Any increase in wages must reflect improved productivity.”