The Treasury is refusing to commit to a £9 national living wage within four years, just days after the OBR downgraded its forecasts for UK growth.
The OBR predicted that the UK would need £60bn of extra borrowing over five years, and warned that earnings are no longer expected to reach the levels needed to top the £9 barrier.
Designed to reach 60 per cent of median earnings, former chancellor George Osborne unveiled the new living wage in the summer 2015 Budget, stating at the despatch box that it was set “to reach £9 an hour by 2020”.
The OBR said last week it now estimated that 60 per cent of median earnings to total £8.80 in 2020.
And now Treasury officials say that while it remains committed to the 60 per cent figure, it is not certain that will equate to a £9 hourly wage within four years.
Introduced at £7.20, estimated by the OBR at roughly 55 per cent of median earnings, the Low Pay Commission has the responsibility for recommending increases on an annual basis.
It had previously been expected to reach £7.60 this year, but was instead boosted to £7.50 thanks to pressures on the British economy.
At last week's Autumn Statement focused on groups branded as "Just About Managing" (or JAMs), chancellor Philip Hammond nonetheless dubbed the increase as "a pay rise worth over £500 a year to a full-time worker".
A Treasury spokesman said: "We have set an ambitious target for it to reach 60 per cent of median earnings by 2020, which will deliver a significant boost in wages for the lowest paid over this parliament.
"It’s important that increases to the rate reflect wider economic conditions, and that is why the target is set relative to median earnings and why we’ve asked the independent Low Pay Commission to recommend the path to 2020, taking into account the state of the economy and the labour market."
It comes after the OECD warned caution was needed over increases to the living wage, particularly given the potential fallout for employers.
"The effects on employment need to be carefully assessed before any further increases are adopted, especially as growth slows and labour markets weaken," the OECD said.