The Trade Union Congress (TUC) is backing the government's plans to increase redundancy pay, calling for its value to be restored, despite warnings that a rise could cause further job losses.

The government's Statutory Redundancy Payment (Amendment) Bill proposes that the maximum week's pay used to calculate statutory redundancy pay be increased by 43 per cent, from £350 to £500. The bill has been criticised by the Forum of Private Business (FPB) as a hinderance that could potentially force businesses, particularly small ones, to close completely leading to even further job losses.

FPB's chief executive, Phil Orford, said: "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." A spokesperson for the TUC denied the claim. He said: "If the redundancy limit had been uprated in line with prices it would now be a little over £500, and if increased in line with earnings it would now be in excess of £1,000.

"A one-off rise to £500 and a link to earnings rather than prices in future is the minimum we need to see to start to restore some fairness.  Redundancy pay is not compensation for losing your job, it is designed to be a safety net to enable people who unfortunately do lose their job to cope with that. "Anyone who has been made redundant knows that it is not just a great shock personally, especially if you've worked in the same firm for a number of years. Many people, including employers, however, underestimate the dramatic economic shock and are often devastated when they see the level of jobseeker benefits available to them.  Decent redundancy pay can literally buy some time to enable individuals to cope, reducing the risk of house repossession, enabling workers to look for re-employment or retraining to get back into work."