A report aimed at cutting red tape for employers, by Adrian Beecroft, which had been due to be published later this week, has been leaked, leading to a potential rift between the Conservatives and Liberal Democrats, particularly over one of its central themes, ‘no-fault dismissal’.

The report says that “regulations, conceived in an era of full employment” are stifling the business and job growth that will raise the UK economy out of its slump and goes on to say:

“In today’s era of a lack of jobs those regulations simply exacerbate the national problem of high unemployment. … While it may seem counter-intuitive, even making it easier to remove underperforming employees will in the short run not increase unemployment as they will be replaced by more competent employees. In the long run it will increase employment by making our businesses more competitive and hence more likely to grow.”

Business Secretary Vince Cable has described as “bonkers” the idea that employers would be able to sack workers at will and has warned that the proposal would leave a “dead hand of fear” hanging over employees. He said that it was “completely the wrong approach.”

But speaking in America, Prime Minister David Cameron said: “On the issue of no-fault dismissal and other proposals like that, I am interested in anything that makes it easier for one person to say to another person: ‘Come and work for me,’ because we need to make our economies flexible. He added: “We need to make our labour markets work as flexibly as possible and we will obviously need to examine each proposal on its merits.”

However, according to the Guardian, the Prime Minister is likely to accept that the proposal be dropped, given the strength of Mr Cable’s views and once evidence gathering from business leaders is completed next month.