On behalf of staff in the IS Investigation and Enforcement Division, based in London, Manchester, Birmingham, Edinburgh and Exeter, Prospect union said the service had been forced to make cuts of 11% to the current year’s budget for the Investigation and Enforcement Services. The cuts of £3.25m will hit the IES’ ability to investigate complaints in live trading companies and take action against fraudulent, reckless or incompetent directors of failed companies.

Official studies for the service estimate that each disqualification saves £103,000 of future losses to creditors. The 11% cuts equate to nearly 200 directors not being disqualified and around 50 live companies not being investigated in response to complaints from the public.

Prospect Branch President Tony Butcher said: “The Insolvency Service is at the forefront of ensuring fairness in the market – it provides protection for honest businesses and innocent consumers. The withdrawal of funding for investigation will expose consumers in Britain to companies tempted to cut corners or rip people off.

“These cuts are history repeating itself,” said Butcher. In 1992, during the last recession, the Public Accounts Committee criticised the Insolvency Service for not spending enough money investigating failed companies. The-then Government was shamed into providing funding for IS to lead the drive against fraud by taking action against cowboy, fraudster and incompetent traders.

“The £3m ‘saved’ this year by not investigating will be dwarfed by the impact on the economy as a whole – over £20m,” said Butcher. “The public and honest businessmen will pay the price for this most crass of false economies.

“The cuts will keep on having an effect year on year – that’s 11% of wrongdoing each year which won’t be investigated and the culprits brought to book.”