It has been claimed measures designed to protect employees are having the opposite effect.

Phil McCabe, spokesperson for the Forum of Private Business (FPB), made the claim following the government’s approval of an increase to the minimum wage to £5.80 from October.

He said the increase is happening at exactly the wrong time thanks to credit restrictions and spiralling costs.

As a result, the FPB urged the government to freeze the minimum wage in the Budget, but its recommendation fell on deaf ears.

"The danger is that these measures designed to protect employees – which heap more costs onto small businesses are actually acting as a barrier to employment and also the retention of staff," the representative added.

Meanwhile, the British Chambers of Commerce recently argued for a moratorium on any new employment law to help give businesses a chance to safely ride the global economic storm.