The government have announced that the minimum wage in the UK for workers over 21 years old will rise by 7p to £5.80 an hour from October this year.

The rate for 18 to 21-year-olds will increase by 6p to £4.83 and for 16 and 17-year-olds will go up by 4p to £3.57.

Many small business groups had called on the government to freeze the minimum wage due to the number of companies that are struggling in the economic downturn.

"Businesses should be free to negotiate pay levels with staff individually according to what is affordable during these tough times - rather than keep up with a one size fits all pay rise," said John Wright of the Federation of Small Businesses (FSB).

"The FSB is grateful the government has raised the minimum wage by only 7p, but with one hundred and twenty businesses closing a day and when many are struggling with cashflow, this is unfortunately another cost on employers."

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Wages in the UK have declined 6% in just 12 months, according to data from the Office of National Statistics (ONS)

The average weekly wage is now £459.10, down 5.8% year-on year from February 2008 - the largest drop since the ONS began collecting such data in 2001.

Many small business owners have frozen salaries, or even cut pay in an attempt to combat the economic downturn and as an alternative to making redundancies.

The figures also revealed that the financial sector was the worst hit, with bonuses more than halved from £1,312 a week to £549.

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The majority of businesses in the UK are planning to freeze wages this year

The British Chambers of Commerce's survey of more than 400 companies found that 58% of companies are planning to freeze salaries and 12% will cut their employees' wages.

"There was some support in the Budget, but more is needed to help Britain's embattled businesses so that they can drive our economy out of recession, creating jobs and wealth in the process," said BCC director general David Frost.

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Wage Subsidy Fund

A wage subsidy fund would help reduce the amount of staff that SMEs are forced to cut due to the recession, according to the TUC and FSB.

The TUC and FSB have called on the government to subsidise up to 60% of a worker's wage by a combination of a specially set up fund and the job seekers allowance.

With unemployment figures in the UK steadily increasing - it currently stands at just under 2m - the TUC and FSB claim that the government could support over 600,000 employees a year at a cost of £1.3bn.

A number of European countries such as France, Italy, Spain and Germany have already set up such a fund to try and reduce the amount of staff that are laid off as firms seek to cut costs.

"Where they are needed, wage subsidy schemes provide a quick and effective way to cut costs for struggling businesses and vital financial help for hard-pressed employees," said Brendan Barber, TUC general secretary.