The rise will be extended to those aged 23 and over.
The Low Pay Commission proposed earlier this year the NLW should rise from £8.72 to £9.21 per hour. However, Sunak said the impact of COVID-19 had made that unaffordable. The rise also falls short of a 5.6% increase forecast by The Times.
Trades Union Congress (TUC) general secretary Frances O’Grady said: “Workers on the national minimum wage – not least the two million who are key workers – have been let down by the government’s decision to row back on the full planned rise they were promised.
“If the chancellor wants to stop mass unemployment, the test will be how quickly today’s infrastructure announcements deliver enough good jobs in the parts of the country that need them most.”
A freeze on public sector pay rises was announced for 2021, but will not apply to those earning less than £24,000, who will be guaranteed a pay rise of at least £250.
The SNP's Treasury spokesperson Alison Thewliss said that the chancellor was "failing to address the reality" of low-paid, insecure work.
Trade union Unison general secretary Dave Prentis said the chancellor’s announcement was "austerity – plain and simple".
On the public sector pay freeze, he said: "Going after the pay of millions will be a bitter pill for key workers getting the UK through the pandemic and out the other side.
“Extra money in pockets gets spent locally. Less than a pound more a week for some won’t save the thousands of ailing shops and leisure, arts and hospitality venues across the country."
O’Grady said: “After a decade of standstill pay, yet another pay freeze is a kick in the teeth for the key workers in the public sector who kept the country going in this crisis.”
Sunak also announced that the government would “improve the way the apprenticeship system works for businesses.”
Education and Skills Funding Agency (ESFA) documents published alongside the speech set out that from August 2021, employers who pay the apprenticeship levy will be able to transfer unspent levy funds “in bulk” to small and medium-sized enterprises (SMEs) with a new “pledge function”.
The chancellor said that incentive payments for hiring a new apprentice introduced in the Plan for Jobs will be extended to 31 March 2021.
Neil Carberry, chief executive of the Recruitment & Employment Confederation (REC), said: “The chancellor is right that the apprenticeship levy needs to work better for businesses, so making it more flexible is a step we have long campaigned for.”
Carberry said that action needs to be taken now.
“The levy must be broadened so temporary workers can access high-quality, shorter training courses – the kind that are needed now to help people transition into growing industries and support the government's ambitions for regional infrastructure.
“Local recruiters who know the labour market will be essential to these plans.”
Ben Willmott, head of public policy at the CIPD criticised the government’s lack of flexibility in the Apprenticeship Levy.
He said: “Given that apprenticeship numbers and investment in workplace training are both falling, the government must consider making the Apprenticeship Levy more flexible. This would enable new employment opportunities through apprenticeships as well as boost the retraining or upskilling of existing staff.”
The chancellor said unemployment will rise to 2.6 million by the second quarter of 2021.
To tackle the challenges presented by a more turbulent job market, Sunak said an extra £3 billion will be added to the budget in 2021, £1.4 billion will be used to increase the capacity of Jobcentre Plus – the government’s support service for the unemployed.
However, he warned MPs that the government cannot protect every job.
Kirstie Donnelly, CEO at City & Guilds Group, said that the prediction of 2.6 million unemployed people in the UK next year should “ring alarm bells.”
“Re-focusing existing funding is sensible right now, but the Restart programme feels backward-looking in scope and lacks any detail about how we’re going to support people to retrain and reskill now,” said Donnelly.
Willmott said the largest gap in the chancellor’s announcement was an investment in skills.
“The government’s ambition and level of investment in this area fails to do enough in the current crisis. Greater investment in skills will be crucial in tackling the UK’s poor workplace productivity performance,” he said.
“It would help equip people for changing job opportunities, give businesses the skills they need to survive and grow, support wage growth and help the economy recover lost ground as quickly as possible.”
Donnelly added: “It would serve no one, least of all those trying to get back to work, to see a rehash of the unsuccessful Work Programme.
“In order to get to grips with this unprecedented crisis, what we need are more creative and practical strategies designed to tackle today’s issues, to get away from a top down, one-size-fits all approach and listen to the ideas and needs of local regions, and we need immediate action.”