The number of new companies being set up has fallen to its lowest level in 35 years, according to research conducted by accountancy firm Wilkins Kennedy.

Last year in the UK 372,400 new companies were set up - 17% fewer than in 2007.

Although the current recession is partly responsible for the lack of new companies the government has also been blamed for the decline in start-ups.

In the last few years a raft of new legislation - such as flexible working - have been introduced that have added to the paper work faced by small firms, as well as tax on small companies rising from 19% in 2007 to an expected 22% in 2010.

"These figures show just how badly the small business sector is being hit by the downturn," said Roger Williams from Wilkins Kennedy.