Report comes out on day Vince Cable, the business secretary, announces minimum wage rise to £6.50 an hour

This article is more than 6 years old

This article is more than 6 years old

The government should have a minimum wage target of £6.94 and create a powerful watchdog to help workers out of low pay, a nine-month inquiry chaired by Sir George Bain, the architect of the policy has suggested.

The report was published on the day Vince Cable, the business secretary, announced the minimum wage would rise by 19p – or 3% – to £6.50 an hour and signalled there would be bigger increases in future years.

Cable said a million people would see their annual pay increase by as much as £355 in the first real-terms cash rise since 2008.

The rise from October is expected to be the first of several above-inflation rises after a Treasury report said the minimum wage should be restored to pre-crisis levels.

David Norgrove, chairman of the Low Pay Commission, said: "Provided the economy continues to improve we expect to recommend further progressive real increases in the minimum wage, so that 2014 will mark the start of a new phase - of bigger increases than in recent years - in the work of the Low Pay Commission

However, in his report, Bain recommended a more radical overhaul for the minimum wage, saying the Low Pay Commission's role is currently too passive.

His study, along with a group of academics assembled by the Resolution Foundation said the minimum wage should ultimately be 60% of the median hourly earning, instead of the current level of around 55% of £11.56.

It also recommended that the Low Pay Commission should be made into a powerful new watchdog with the ability to support the ambition of lifting low salaries.

The new body would publish analysis that shows whether certain sectors could afford to pay more than the minimum wage and a separate proposed affordable wage for London

George Osborne, the chancellor, has said he ultimately wants the minimum wage to rise to £7.