Philip Hammond is seriously considering a major increase to the minimum wage as he seeks to secure a legacy of ending low pay, it has emerged.

Several sources familiar with the chancellor’s thinking told the Observer they believed he was pushing to look at the “ambitious end” of what would be possible without damaging Britain’s employment levels, suggesting he is contemplating going further than any developed nation.

A proposal under discussion would see the minimum wage pushed up to 66% of median earnings, meeting the Organisation for Economic Co-operation and Development’s definition of low pay. It would allow the chancellor to say he had set a course to end low pay in Britain. The chancellor held a meeting with Frances O’Grady, general secretary of the Trades Union Congress (TUC), last week, and he is understood to be meeting other union leaders at a round table this week. One government source said: “The chancellor is very concerned about poverty and sees this as one avenue of tackling it.”

The Treasury has already commissioned a study into the effects of another major increase to the minimum wage, to be conducted by US academic Arin Dube. Dube’s work has already argued that increases to it do not significantly hit employment.

However, Hammond’s enthusiasm is making some employers nervous. Such a move could mean that the wages of as many as a quarter of the workforce are dictated by the minimum wage. The Office of Budget Responsibility has also warned that in today’s terms setting the minimum wage at 66% would cost 140,000 jobs. The main minimum wage rate currently stands at £8.21 an hour and is due to rise to 60% of median income next year, or about £8.60 an hour.

The moves by Hammond indicate that his thinking has evolved significantly over the course of his political career. Back in 1997, he told parliament that Labour’s plan to introduce a minimum wage would “drive some small businesses into the black economy”. He called it an “ill-conceived piece of legislation and a hangover from Labour’s past”.

The chancellor is expected to set out his plans before the end of the year, though a major debate remains about how fast an ambitious new target should be reached. Some experts believe setting 2025 as the target to abolish low pay is achievable, while others are concerned that there is so much uncertainty in the economy that it should be done more cautiously.

Backing a major hike will see both main parties competing to raise the minimum wage to levels that are internationally unprecedented. Labour has said it would raise it to about £10 an hour by 2020. Setting it at 66% of median earnings would represent a minimum wage of £9.61 in 2020.

Torsten Bell, director of the Resolution Foundation thinktank, said: “It’s encouraging to see both the chancellor and shadow chancellor showing great ambition on how to raise the UK’s wage floor even further. This reflects just how successful the minimum wage has been – delivering big pay rises and boosting living standards for millions of low-paid workers.

“However, the national living wage is already high compared to other advanced economies, so ramping it up further will not be without risks as we enter largely uncharted territory.”

Kate Nicholls, chief executive of UKHospitality, said that there may be other ways of increasing take-home pay. “Businesses are happy to reward their team members when they can, but conditions need to be right,” she said. “High streets are under enormous pressure and hospitality is battling against major cost hikes, chiefly business rates. Some businesses, particularly smaller ones, will struggle to meet the cost of a significant increase in wage rates.

“National, minimum and living wages rates should not be set to meet arbitrary or political targets – they should be determined independently by the Low Pay Commission to ensure they are fair and reflect economic realities. If the government does wish to lift people out of in-work poverty, there is only so much heavy lifting that increasing wage rates can do. The government needs to consider this as one part of wider efforts.”

A Treasury spokesperson said: “Our ultimate objective is ending low pay, while ensuring that job opportunities are protected. The government has commissioned a review of the latest international evidence on the impact of minimum wages and will announce the independent Low Pay Commission’s remit at the end of this year.

“The chancellor and business secretary will be hosting a round table with a range of business bodies and trade unions to discuss how best to achieve our ambitious aims and improve lives and opportunities for the low paid.”