A rise in the minimum wage and a ‘fair deal’ promise on tips announced by the business secretary today have been welcomed by trades unions.

Lord Mandelson said new rules will come into effect today to ensure thousands of workers get a fair deal on tips and wages.

The new changes will make it illegal for businesses to use tips to bring staff pay up to the minimum wage levels.

Lord Mandelson said: "When I leave a tip I don’t expect it to be used to make up the minimum wage. I want it to go to the person who has served me as a thank you for their service. This is a basic issue of fairness. Tips are meant as a bonus – not a tool to boost pay to the basic minimum.

"That’s why the government has closed this legal loophole. Thanks to the help and support of Unite, the British Hospitality Association, the CBI, Consumer Focus and other stakeholders we are also able to launch a new code of best practice today.

"This will promote good tipping practices amongst businesses and ensure that consumers are clear about what happens to their money."

The announcement also confirmed the minimum wage would be increased from £5.73 to £5.80 an hour for over 22-year-olds, and from £4.77 to £4.83 an hour for 18-21-year-olds.

Sixteen to seventeen-year-olds will also get a four pence rise. The business secretary added that minimum wage remained "one of the most important rights for workers".

The announcements have been welcomed by trades unions, who say the changes will affect nearly one million people.

Derek Simpson, Unite joint general secretary said: "There is now an urgent need for the hospitality industry to be transparent in how they handle the tips and service charge money left for staff.

"Unite is looking to the sector to adhere to the best practice principles and ensure that customers have the information they need to make an informed choice before they leave a tip or service charge."

The Trades Union Congress (TUC) has also highlighted that two in three of the 950,000 beneficiaries will be women, reinforcing the minimum wage’s positive role in narrowing the gender pay gap.

TUC general secretary Brendan Barber said: "The minimum wage is one of this government’s greatest successes and low paid workers will be relieved to see it increase again this year.

"The raise is a modest one but it will put extra cash in the pockets of some of the UK’s most low paid workers. The Low Pay Commission was right to withstand pressure from business to freeze the minimum wage during the recession.

"It’s vital tipping and payment policy are clear to both workers and consumers."

However, the British Retail Consortium (BRC) has said next year’s increase in the national minimum wage "must be no more than this year’s increase".

The BRC say today’s rise is a "sensible figure" during a recession and while supporting the principle of the minimum wage, is campaigning for a rise in the range of zero to one per cent and certainly no higher than today’s increase.

BRC director general Stephen Robertson said: "Against a background of really tough trading conditions, where retailers need help to maintain and go on creating jobs, this is a sensible increase and one that BRC evidence played a major part in achieving.

"1.2 per cent strikes a common sense balance between helping low-paid workers and enabling retailers to maintain, and where possible, increase job opportunities. But underlying confidence is very fragile. It should not be taken for granted. Next October’s increase should be in the range of between zero to one per cent – but no higher than this year’s."

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