THE Prime Minister was last night on course to set the new national minimum wage at #3.60 an hour, after receiving a recommendation that fell substantially below the level demanded by the trade unions.

An overdue, 400-page report by the Low Pay Commission, which was set up to pinpoint a standardised hourly pay figure, was submitted to the Prime Minister yesterday.

In addition to its central recommendation for paying workers over 21 years of age #3.60, the report by the eight-member panel of academics suggests exemptions for younger employees.

Those aged 18-21 would receive #3.20 an hour, while those aged 16-18 and those in training schemes would be exempt altogether.

The figure represents a climbdown from the commitment made by the late Labour leader John Smith to introduce a minimum wage based on half male median earnings of around #4.60 an hour.

While the introduction of a minimum wage was one of Labour's election pledges, Tony Blair has stressed all along that it must be introduced ''sensibly''.

The commission's recommendation, which the Prime Minister will find difficult to reject, will disappoint many trade union officials, although it was welcomed by business leaders.

The minimum wage will affect the salaries of around one-and-half million low-paid workers, ranging from cleaners to fast-food workers. The self-employed, children below school leaving age, and prisoners, will be among those exempt.

A Downing Street spokesman said: ''The report has been submitted to the Prime Minister and Margaret Beckett, the President of the Board of Trade. The Government will respond in due course.''

Mr Martin O'Neill, chairman of the Commons Select Committee on Trade and Industry, said the #3.60 figure was the ''median'' of the figures which had been widely discussed.

''There will be some disappointment among some of the trade unions, though I think it's a figure that industry could live with.''

Rodney Bickerstaffe, general secretary of Unison, Britain's largest union, said he would carry on campaigning for #4.61 an hour which was once Labour Party policy and which he said would help around five million workers.

''Surely at the end of the twentieth century to sweat someone in a rich nation like ours for as little as #3.60 an hour does not do credit to a people committed to fairness and social justice. I will continue to campaign to get the level raised.''

Jack Dromey, of the Transport and General Workers' Union, said that while the unions would have preferred a higher figure than #3.60, it was still a positive move.

''It will establish for the first time a low point below which no-one will fall. It will be very good news for low paid people up and down the country.''.

He added, however: ''It would be unhelpful for young people to be paid at a lower rate. There's no justification for that. Ministers will have to make their minds up, but I hope they will endorse one rate for all.''

But Sir Colin Marshall, president of the Confederation of British Industry and chairman of British Airways, said #3.60 an hour would be ''acceptable''.

He said: ''We think that at that level it is workable and it is reasonable, and we would hope that it will not lead to any significant job losses and not create any level of additional inflation.''

SNP employment spokesman Alasdair Morgan said: ''A rate of #3.60 an hour would make little difference to the problem of poverty wages in the UK, and would come as a great disappointment to the people affected and their representatives.''

Tim Boswell, Shadow trade and industry spokesman, said the minimum wage would add costs to business and threaten jobs.

Richard Spring, the Shadow Culture Secretary, warned that a minimum wage of #3.60 an hour could have an adverse effect on jobs in the tourist industry.