BUSINESS leaders warned companies could be "tipped over the edge" by an increase in the minimum wage, announced by the Government yesterday.

From October, the minimum wage will rise by 30p to £4.50 an hour, boosting the pay of millions of workers.

The rate for 18 to 21-year-olds will also be increased from £3.60 an hour to £3.80.

The announcement came as Trade and Industry secretary Patricia Hewitt announced she had provisionally accepted a recommendation from the Low Pay Commission for further increases in October 2004 to £4.85 an hour for adults and £4.10 for younger workers.

She said next year's figures would depend on economic circumstances, but businesses warned that the latest rise alone would cost jobs.

Ruth Lea, head of policy at the Institute of Directors, said new rates were "unwise" given the current economic difficulties.

"Many businesses, especially outside London and the South-East, will find it increasingly uneconomic to take marginal employees on at these rates. This will undoubtedly jeopardise employment prospects for the low skilled," she said. David Frost, director general of the British Chambers of Commerce said: "We are concerned that this cost, as well as increasing National Insurance Contributions, will tip businesses over the edge."

Digby Jones, director general of the Confederation of British Industry (CBI) said that companies would accept periodic increases - as long as they did not do more harm than good. "Nobody should forget that our most vulnerable companies will be paying the bill and that many will find this rise difficult to afford," he said.

Union leaders welcomed the increased rates but said they should have been higher.

Dave Prentis, general secretary of Unison said: ''The new minimum wage will still leave many people reliant on tax credits and it is the taxpayers who have to pick up the tab for poor-paying employers," he said.

GMB regional secretary Kevin Curran called for a minimum wage of £5.40 per hour.

He said: "Either the Government is serious about ending low pay or it is not. If we are going to tackle the problem we need inflation-busting rises each year until every worker in this country earns a living wage."