The government's announcement that the minimum wage for 18 to 21 year-olds is to rise by nine per cent has received the backing of business leaders and trade unions.

Trade and industry secretary Patricia Hewitt revealed on Thursday that the minimum wage for young people is to be increased from £3.20 an hour to £3.50 from 1 October 2001.

The decision to accept the Low Pay Commission's recommendation means that 140,000 young people will see their pay packets rise by £10.50 for a 35 hour week.

However, the government said it intended to retain the lower rate for younger workers, despite calls from unions for it to be scrapped. The government also rejected calls from the Low Pay Commission for 21 year-olds to be paid at the full rate.

Applying the adult minimum wage rate to 21 year olds from October 2001 would have resulted in a 28 per cent increase in the hourly cost of employing them, said the government.

"The rise strikes the right balance between making a real difference to young workers without damaging the economy or jobs. This is a sensible increase that raises minimum standards but doesn't jeopardise the employment prospects of 18-21 year olds," said Hewitt.

The CBI cautiously accepted the rise for young workers, but said the increase would be difficult for many small firms to absorb.

John Cridland, deputy director-general of the CBI, said: "Most companies will see this as just about bearable. The government stopped just short of the line where an increase would do more harm than good by shutting young people out of the labour market."

Cridland said the CBI believes a separate youth rate is important to protects jobs for young workers.

"The youth rate is one reason why the impact of the minimum wage has not been as bad as many feared," he said.

However, Bill Morris of the Transport and General Workers Union called for those aged over 18 to get the full adult rate.

"Whilst we are pleased that the government has announced the rise we nevertheless believe that if the age of 18 marks the age of adulthood when young people can marry, die for their country and make their own decisions, that should be the age for the adult rate for the minimum wage," he said.

TUC general secretary John Monks said he welcomed the rise in the youth rate.

"But the decision to reject the Low Pay Commission's recommendation that the adult rate should start at 21 is extremely perplexing. The Commission has now called for the adult rate to start at 21 three times and we can see no arguments to reject this clear call from a body that includes employers as well as independent experts and trade unionists," he said.