SMALL businesses in the South West say that huge increases in insurance premiums for accidents in the workplace are causing some firms to go bust.

But the Forum of Private Business is more concerned that some companies may simply avoid paying for this compulsory insurance cover altogether, hoping that accidents will not happen.

Rick Hopkins, FPB spokesman for the South West, said: "In the present climate where claims for compensation by one aggrieved employee can bring a company to its knees, businesses must be insured against all forms of liability.

"The huge increase in legislation that small businesses have to deal with has also impacted on the number of employers' liability cases being brought, their outcome and their costs."

Dennis Grant, chief executive of Swindon Chamber of Commerce, believes the compensation culture is proving very damaging.

"It is hurting the smaller employer," he said.

"People are seeking compensation for everything nowadays. Because of that, insurance premiums are higher, which means certain small businesses can't take on new ventures because the liability costs are too high."

The Confederation of British Industry is to press this week for urgent curbs on the compensation culture as part of a bid to contain 'unsustainable' rises in business insurance costs, which last year saw firms struggle to absorb premium increases averaging 50 per cent.

CBI director-general Digby Jones said: "One of the biggest issues is that people are more aware of their rights and more willing to take legal action.

"That is not in itself a bad thing, but it makes it even more important to stop abuses of the system."

The Labour Force Survey suggests that around one million workers suffer work-related injuries a year.

Companies must take out insurance so workers can get compensation for injuries caused by employer negligence.

The two current forms of legislation, the Employers' Liability Insurance and the Industrial Injury Disablement Benefit, cost firms up to £1.8 billion a year, with estimates suggesting that 40 per cent of this goes on legal fees.