David Cameron is risking an open split in the Coalition if he backs a report that calls for changing the safeguards that protect employees from being sacked, Liberal Democrats warned yesterday.
Vince Cable, the Business Secretary, is fighting a fierce battle behind the scenes against plans which Mr Cameron is reported to be backing, put forward by Adrian Beecroft, a multimillionaire venture capitalist who has given more than £530,000 to the Tory party.
Liberal Democrat sources said yesterday that most of the Beecroft report, which is expected to be published soon, will consist of what is already government practice – apart from a highly controversial section covering employees' rights.
Mr Beecroft's views on employee protection are similar to those of Mr Cameron's friend and former political adviser, Steve Hilton, who wanted the Government to refuse to sign up to an EU directive on the rights of agency workers.
Mr Hilton left Downing Street this week. A source close Mr Cable expressed surprise that with Mr Hilton gone, Mr Cameron should risk taking controversial advice from a prominent Tory donor.
"Britain has one of the most flexible labour markets in the world. In fact workforce flexibility is often cited by foreign businesses as one of the chief contributing factors to investment in the UK," the source said. "It is surprising that No10 backs a report compiled by one of the Tory party's biggest donors."
According to reports, Mr Beecroft makes 20 proposals, several of which make it easier or cheaper for companies to shed staff, including reducing to 30 days the mandatory 90-day consultation that a company has to hold before imposing redundancies. Mr Beecroft suggests that it should go down to five days when a company is in "severe" difficulties.
The Institute of Directors welcomed the report. Its director general, Simon Walker, said: "The current system is so restrictive that it deters companies from hiring new staff, and in extreme cases firms are going under because redundancy procedures take too long. Beecroft's recommendations are encouraging, and the Government should back him strongly. Less red tape means more jobs."
But Labour's shadow Business Secretary, Chuka Umunna, said: "Our economy is not in recession, with over 2.6 million people out of work, because of the rights we all enjoy at work. We are in recession because of the economic incompetence of this Government."