The national minimum wage is to rise by 20p an hour to £6.70 from October.
The government said that the change would benefit 1.4 million workers.
Wages for apprentices will also rise in October, going up by 20% to £3.30 an hour. The Low Pay Commission had recommended a 7p an hour increase, but the government has gone further by increasing the rate by 57p an hour.
The hourly rate for 18- to 20-year-olds will go from £5.13 to £5.30 and by 8p to £3.87 for 16- and 17-year-olds (2%).
David Cameron said: “At the heart of our long-term economic plan for Britain is a simple idea – that those who put in, should get out, that hard work is really rewarded, that the benefits of recovery are truly national
“That’s what today’s announcement is all about, saying to hard-working taxpayers, this is a government that is on your side. It will mean more financial security for Britain’s families and a better future for our country.”
Nick Clegg added: “Whether you’re on low pay or starting your dream career through an apprenticeship, you will get more support to help you go further and faster.”
The business secretary, Vince Cable, said he was planning to launch a national minimum wage accelerator which would compare the rates of pay across sectors.
Cable said: “We know there is a persistent problem with low pay in some sectors of the economy, and areas of the UK. The minimum wage system is necessary and right, but is a minimum by definition.
“Good employers want to be responsible and reward their staff as much as they can afford in order to attract the best people and have a happy, motivated and productive workforce.
“By making it easier to compare salaries we can encourage businesses to consider whether they can increase levels of pay or work with their employees to provide a path out of low pay.”