Up to six million workers would benefit from an extra eight days holiday each year under the plans. Some employers currently include the eight bank holidays as part of workers' 20-day annual leave entitlement (pro-rata for part-timers).
The Department of Trade and Industry (DTI) is launching a second public consultation on possible changes.
Statutory annual leave entitlement would be increased in two stages, rising from 20 to 24 days on October 1, and from 24 to 28 days on October 1, 2008.
Research by the DTI found that groups standing to benefit most from the changes include women, part-time workers, low-paid workers and workers from minority ethnic communities.
Jim Fitzpatrick, DTI Minister for Employment Relations, said: 'Most companies already recognise that good holiday provision makes good business sense. Holiday entitlement can be a key factor in recruiting and retaining staff. Holidays are also important for productivity as they help minimise sick leave and keep people motivated and refreshed. We've worked closely with business and have wanted to make sure that they have time to prepare for the changes.'
An increase would move UK workers' annual leave entitlement closer to that of workers in other European countries, where holiday allowance is typically more generous. Compared with the current minimum allowance of 20 days in the UK, for example, workers in Ireland are entitled to 29 days; the highest minimum entitlement is in Austria at 38 days.
The cost to business is expected to be around 0.4% of the wages bill.