The government’s plans to increase the minimum wage by 1.9% in October will wipe out half of the gains made by employers in the budget, retail leaders have warned.

The increase, which will come in from October, was described as a “barrier to growth” by the ACS. It claimed its research showed that 80% of retailers had reduced staff hours because of the minimum wage and nearly 70% were putting off investment plans.

“The right decision for businesses would have been to freeze the minimum wage,” said ACS CEO James Lowman. “Our research has shown that retailers have little choice but to reduce staff hours and delay investment when the minimum wage is increased.”

The ACS estimates the actual cost to a retailer for a full-time employee will be £7.23 per hour when holiday entitlement and national insurance is taken into account.

The Forum of Private Business said the rise would account for over half of the Chancellor’s £2,000 allowance given to employers in the Budget, which kicks in in 2014. It also warned that a campaign for a so-called “living wage”, which would result in an £8.30 per hour minimum in London if supporters get their way, would be disastrous.

However, the BRC said the minimum wage increase, from £6.19 to £6.31 per hour, was a show of “restraint” by ministers.

“This strikes the right balance between helping workers on the lowest incomes and reflecting the realities of current conditions,” said director general Helen Dickinson.