A private members' bill that proposes to increase redundancy pay to help workers laid off due to the recession could actually force businesses to close and negatively affect the economy, according to the Forum of Private Business (FPB).

The Statutory Redundancy Payment Bill proposes increasing the maximum weeks pay used to calculate Statutory Redundancy Pay by 43%, from £350 to £500.

Wages have overtaken inflation since statutory redundancy pay was introduced in 1965 and the current £350 per week limit equates to only slightly more than half the average weekly salary.

However, it is feared that with unemployment standing at almost 2m and set to increase many small businesses owners would be not be able to afford a rise in redundancy pay.

"The proposal, apparently to protect workers, is misguided because it would increase unemployment by forcing many businesses to close that might have survived had statutory redundancy pay been left alone," said the FPB's Chief Executive, Phil Orford.