Vince Cable will today reject proposals backed by Downing Street to allow companies to "fire at will" under-performing workers without them being able to claim unfair dismissal.
The Liberal Democrat Business Secretary will bury the controversial plan by Adrian Beecroft, a venture capitalist and Conservative Party donor, who proposed a system of "no fault dismissal" allowing firms to pay off staff against their will.
The idea won the backing of Mr Cameron, George Osborne and many Tory MPs, who believed it would boost jobs and growth by encouraging business to recruit. But Mr Cable will say today that removing workers' rights in a recession would add to job insecurity, making people less likely to spend money and aid economic recovery.
A consultation exercise by his Business Department found only lukewarm support among small firms, he will announce. Some 34 per cent were in favour but 32 per cent against and 30 per cent unsure about it.
Instead, Mr Cable will announce a package of other measures to give companies more confidence to recruit. He will propose much wider use of "settlement agreements" under which employers make a compensation offer to an under-performing worker. If the employee accepts the deal, they cannot then claim unfair dismissal. But the pay-off cannot be imposed on them, as under "fire at will".
He will answer Tory claims that he is a "roadblock to growth" by unveiling other plans to give business more confidence. The £72,300 cap on unfair dismissal payouts will be reduced, possibly to one year's salary, because the median compensation is only between £5,000 to £6,000. Employment tribunals will be speeded up and streamlined so that costs are kept to a minimum and weak cases thrown out more quickly.
Government sources deny there was a rift between the two Coalition parties over the package. Cable allies insist about 80 per cent of Mr Beecroft's proposals are being implemented.
And in a sign that the Business Secretary has answered his critics, his blueprint won the backing of the Institute of Directors last night.