Ministers are considering freezing or even cutting the minimum wage, despite embarking on the largest contraction to date in the welfare state with the aim of making ?work pay?.
The wage, paid to almost a million low paid workers at companies such as retailers and manufacturers, has never been cut since its introduction in 1999.
But Downing Street said on Tuesday morning the business department was mulling over a report from the Low Pay Commission, which recommends the wage level, and could end up reducing the rate.
?It is something we need to make sure works and continues so that it supports people,? Number 10 said. ?Changes are being made to the tax and benefits system that mean a couple with two children on the minimum wage will be £340 better off per year.?
The wage, presently at £6.19 an hour, is usually set each spring and comes into force in September.
Jo Swinson, Liberal Democrat employment minister, told the Low Pay Commission in January that the government believes it should take the UK?s stagnant economy into account when setting the rate.
?The level of employment is now above its pre-recession peak, but the employment rate is below the pre-recession peak,? she said. ?This means that we believe that caution is required, particularly as the minimum wage rate is now at its highest ever level relative to average earnings for adults and remains high for young people.?
The hourly rate for workers over 21 increased from £6.08 last year, but the wage for employees aged 18 to 20 was frozen at £4.98.
The minimum wage was established by the Labour government in 1999, at a rate of £3.60 an hour, and is set after negotiations with employers and unions.
Campaigners have long pressured private sector employers and government departments to pay a ?living wage?, which they say would be about £7.45 an hour and £8.55 in London, where costs are higher.
Working people are already worse off under this government because prices are rising faster than wages
Chris Leslie, Labour?s shadow Treasury minister, criticised the chancellor for considering reducing the wage at the same time millionaires got a tax cut in the 50p rate of tax.
?How can George Osborne claim he wants to make work pay when the government is considering cutting or freezing the minimum wage?? Mr Leslie said.
?Working people are already worse off under this government because prices are rising faster than wages. And on top of that figures from the independent IFS show that the average family will be £891 worse off this year because of tax and benefit changes since 2010,? he added.