Government proposals to increase red tape on recruitment agencies could end up costing employers millions of pounds, according to the Association of Professional Staffing Companies (APSCo).

The Department of Business, Enterprise and Regulatory Reform (BERR) is consulting on proposals to strengthen the recruitment agency Conduct Regulations meaning contractors operating through limited companies will no longer be able to opt out of the regulations - which increase bureaucracy for recruiters.

If the opt-out is abolished, APSCo claims recruiters will be forced to pass the additional costs onto their clients.

Ann Swain, chief executive of APSCo, said: "The Government cannot simply expect recruiters to absorb these extra costs, so the costs to organisations that use contractors are likely to rise as a consequence. With unemployment rising and organisations reluctant to hire permanent staff, any increase in the cost of supplying contractors will damage the UK labour market."