Louise Brittain of Baker Tilly, one of the country's top insolvency experts whose cases include former Tory MP Neil Hamilton and celebrity chef Keith Floyd, said the government's bankruptcy proposals are 'shortsighted' and will not encourage entrepreneurialism.

She said: 'It is very dangerous to have bankruptcy as an accepted part of life. These are people who don't pay their bills. It will encourage irresponsibility.'

She feared the bill would make individual voluntary arrangements less attractive. 'Why would people enter into a voluntary arrangement for several years when they can be discharged from bankruptcy in a year' Bankruptcies are likely to 'skyrocket' when the bill is passed and create 'a subclass of people who don't have any assets and live in rented accommodation.'

She fears UK courts, which are already inundated with work, will not have the infrastructure to support the surge in cases and sift honest and dishonest bankrupts.

She added unlike America, UK culture was not conducive to small businesses. People tend to be a bit wary of one-man businesses. Red tape and extra costs such as insurance contributes to the burden of small businesses. Another obstacle, according to Brittain, is the attitude of banks, who are reluctant to lend money to people with bad credit ratings. 'The banks might follow in the same attitude otherwise there's no point.'

The three-month time restriction imposed by the bill will force bankruptcy trustees to be stricter with those in financial dire straits. 'We used to give them time to sort themselves out but now we're going to have to put seven day deadlines on everything,' she said.

'There are much better ways of improving enterprise,' concluded Britain, 'such as simplifying tax rules, giving free [business] training to directors, and increasing the bankruptcy limits from £750.'