Cable forces U-turn on 'fire at will' job reform

Moves to give companies sweeping powers to dismiss under-performing employees are set to be abandoned by David Cameron following a bitter Coalition split over the issue.

The Prime Minister risks a new row with the Conservative right by accepting that plans to allow employers to "fire at will" cannot be forced through in the face of Liberal Democrat resistance.

Conservative Cabinet ministers are arguing for the Government to take an axe to employment law which they argue is helping to choke off economic growth and job creation. A report commissioned by Downing Street by the venture capitalist – and Tory donor – Adrian Beecroft recommended allowing companies to sack staff whose performance it considered to be poor.

But the proposals have run into entrenched opposition from Vince Cable, the Business Secretary, and fellow Liberal Democrat ministers. He has announced a consultation on whether "no-fault dismissals" could be introduced for small companies – but yesterday signalled he had reached his own conclusion after he described advocates of the move as "ideological zealots". Mr Cable said: "British workers are very cooperative and they're very flexible. So we don't need to scare the wits out of workers, with threats to dismiss them."

The chances of the measure being implemented were fast fading as Downing Street sources said the Prime Minister was not prepared to "die in a ditch" for the proposal. One aide said: "If anyone thinks tinkering with employment laws will make any significant difference to Britain growing again, they are misguided."

However, a Conservative Cabinet minister told The Independent he believed employment laws had become tilted against employees – and he strongly backed the Beecroft proposals to make it easier to dismiss staff. He said: "There is going to be a massive push by us to do something on it." The minister said: "Even if the employers win the case in the end, the costs involved for them are huge. At the moment they are much better off giving a wodge of cash to bad employees to make them leave and the employees know that."

A copy of Mr Beecroft's report – which is still open to consultation until next month – was released last night ahead of a freedom of information request.

Its other proposals include:

* Delaying the introduction of rights for parents to ask for extra leave.

* Cutting from 90 to 30 days the consultation period when a company plans redundancy programmes.

* A cap on loss of earnings compensation for employees who make successful unfair dismissal claims.

Some of Mr Beecroft's proposals have been supported by the Liberal Democrats. But the call for companies to be given widespread powers to dismiss staff has split the Coalition partners.

Employment laws: the impasse

David Cameron

The Prime Minister is instinctively sympathetic to Mr Beecroft's calls to loosen employment regulations (apart from any move to chip away at parental leave). But he knows he cannot push the most controversial measures through.

Vince Cable

The Business Secretary is leading efforts to find ways of stimulating sluggish company growth. He welcomes some moves to cut red tape, but making it easier to sack staff goes against all his Liberal Democrat instincts.

Adrian Beecroft

The multi-millionaire businessman was brought in to think the unthinkable on employment law. His conclusion is that protections against redundancy have to be eased and plans for flexible working delayed.