NORTHERN manufacturers said they were deeply concerned about the introduction tomorrow of a new national minimum wage.

The Engineering Employers Federation (EEF) said that the region's employers feared the increase - a rise of 7.8 per cent - may damage company pay differentials, and could cost businesses dearly.

The new minimum wage will be £4.85 an hour.

Alan Hall, director of EEF Northern, said: "We are not doom-mongering here. The regional economy is not about to go into free-fall and unemployment figures soar as a result. But average earnings nationally are moving at the pace of four per cent at the most.

"That raises real anxiety about employees higher up the pay ladder wanting to maintain their relative position to lower-paid employees.

"Distortions of company pay structure through this Government regulation have the potential to be extremely damaging and expensive to resolve.

"Differentials do count in the workplace, and staff do watch the rises of other employees and wish that they could have the same."

In manufacturing, the EEF said employers were more relaxed when the minimum wage was first introduced. At the rate of £3.60 it sat well below the typical rate for semi-skilled and skilled engineering employees.

Mr Hall said: "But that was back in 1999, and the new rate is 35 per cent above that original level. So far, jobs at this end of the regional pay structure have remained and many employees in the North-East find themselves at or near the minimum wage figure.

"But employers will greet the rise with great unease. Even if we manage to avoid problems in the current pay round, they will inevitably follow further ambitious moves by the current administration to rates well above £5 an hour."