A new industry of ambulance-chasing lawyers could spring up if the government implements a new law requiring newspapers to pay the costs of the people who sue them, according to the chairman of the culture, media and sport select committee.

Under section 40 of the Crime and Courts Act 2013, publishers who do not sign up to a state-backed regulator will have to pay the legal costs of both sides in a libel case, even if they win.

Damian Collins, MP for Folkestone and Hythe, who was appointed chairman of the committee in October, said it was “hard to think of any other area of law where such a provision would be allowed”. He said that “the ability of the press to hold the powerful to account is one of the cornerstones of our democracy.”

Writing in the Telegraph, Mr Collins said: “I believe it would be wrong to use the threat of heavy economic sanctions like these to try to threaten newspaper owners into signing up to a system of regulation that they fundamentally disagree with. That is hardly the environment that a free press should be made to work within.”

Paying the costs of a litigant even if they have lost the case “is wrong in principle,” he said, “and once established could create a new industry of ambulance-chasing lawyers encouraging people to hire them on no-win-no-fee terms, to take up complaints against the press.