It is the most radical shake-up of labour laws for decades – but even the Business Secretary admits there is no evidence it will boost the economy.
Downing Street's plan to let employers fire three million workers "at will" was kept alive by Vince Cable (below) yesterday, albeit with no ringing endorsement from him.
He has watered down a proposal backed by David Cameron for all firms to be able to sack poorly performing staff with no risk of being taken to an employment tribunal.
If that does go ahead after a review, it will only apply to small firms.
The overhaul was put forward by Adrian Beecroft, a Tory donor, and championed by Steve Hilton, Mr Cameron's strategy adviser.
But it ran into strong opposition from Lib Dems who see it as a throwback to "Victorian values" and based on little firm evidence.
It sparked an unlikely power struggle between the two Coalition parties ahead of next Tuesday's Autumn Statement by George Osborne.
The issue was thrashed out by Mr Cameron, Mr Clegg, Mr Osborne and Danny Alexander, the Lib Dem Chief Treasury Secretary. The compromise is that the proposal would apply only to firms employing 10 or fewer people.
This allows the Prime Minister to say the idea is still on the agenda and Lib Dems to argue they have diluted it.
Yesterday Mr Cable admitted he "did not support" the plan for no-fault dismissal. Denying he had "caved in" to No 10, he added: "My view is, 'Where is the evidence that this will help?' I don't see it."
Although business groups are enthusiastic, Mr Cable believes the Government has already addressed the problem by deciding that, from next April, employees will be able to claim unfair dismissal only after working for a company for two years, instead of one.
Privately, senior Lib Dems hope the "fire at will" plan will die a natural death. Mr Cable insisted his wider shake-up would not create "a hire and fire culture".
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