Gordon Brown has caved in to unions, allowing a series of concessions - including an extension of the minimum wage - in a move that sent shudders through the business community.

Coming days after Labour’s humiliating defeat in the Glasgow East by-election, it also puts pressure on the Prime Minister’s weakened position.

Dave Prentis, the Unison general secretary, hailed the deal as a return to Labour’s “core values”.

Unions are confident of securing further concessions. One leader disclosed to The Times that ministers had agreed to another policy forum before the next election. “This is only half time, it is not the final whistle,” he said.

Business leaders gave warning that the measures, which include new rights to time off, would hit companies’ ability to compete during an economic downturn. Changes to the minimum wage in particular could cost businesses an extra £88 million a year.

The party also agreed to extend parental leave and to impose new limits on private contractors to the Health Service.

Officials negotiating on behalf of the party insisted that they had seen off the most controversial of the union demands, pointing out that there were no commitments to introduce less restrictive strike laws.

The three-day meeting at Warwick University to agree Labour policies took place in the midst of mounting speculation over Mr Brown’s future as he began his summer holiday in Suffolk.

The unions have found their negotiating position strengthening as individual donations dry up, leaving the party dependent on members’ affiliation fees.

Under pressure from the unions Labour has agreed to extend the adult minimum wage to 21-year-olds. At the moment the full minimum wage of £5.52 applies only to workers aged 22 and over. Those aged between 18 and 21 get £4.60 and 16 to 18-year-olds get £3.40.

The unions have long campaigned for younger workers to get the full minimum wage, arguing that they face the same cost of living as older workers. But the Government has said previously that the rate is lower so that younger workers are not priced out of the jobs market. The change will mean a £1 an hour boost for about 50,000 workers.

Public sector unions claimed victory over a pledge to fight any moves by the European Union to create a single market in health care. They also won a greater commitment to using in-house services for hospital cleaning, with hospitals given more power to terminate contracts with providers.

Councils will also be forced to implement pay equality measures under the public sector reform deal thrashed out in talks that ended at 5am yesterday. Mr Prentis said that the deal provided “ a sound basis for rebuilding support for Labour’s core values”.

David Frost, director-general of the British Chambers of Commerce, said: “At a time when the economy is clearly facing difficult conditions any moves that restrict employers’ flexibility is a concern. And when there are significant issues with the public finances, anything that restricts efficiency in the public services is a problem.”

Neil Carberry, head of employment policy at the CBI, said: “During an economic slowdown business can’t bear the burden of increased regulation. The flexibility of Britain’s labour market is an important competitive advantage.”

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