According to a Government source, Ministers will lodge a new clause in the Enterprise and Regulatory Reform Bill today to clear a path for voluntary “settlement agreements”, which effectively means the end of the no-fault dismissal plan, first suggested in a report commissioned by David Cameron from the venture capitalist Adrian Beecroft, despite some evidence that small businesses are in favour of it.

However, the evidence is unclear. On the one hand, a consultation by the Department for Business, Innovation and Skills is thought to have found that only a little over a third of private sector employers support the idea of compensated no-fault dismissal, while on the other, a recent Institute of Directors (IoD) survey found that a third of firms would create more jobs if no-fault dismissal was in place.

The consultation on the report closed on June 8 but such has been the division in the coalition Government caused by the proposal that, as late as yesterday, the Department for Business would neither confirm nor deny that it will be axed.

And the response to the consultation from businesses was not huge.  Only 135 firms replied, of which just over half were micro-businesses, at which the proposal was aimed.

As one Department source said: “It literally comes down to 13 businesses that support it.”

However, Alexander Ehmann, head of regulatory affairs at the IoD said it was “hugely disappointing” that Vince Cable, the Business Secretary, had rejected no-fault dismissal because of “political unwillingness”.

“If the Government has ignored what little evidence has been put forward, that’s a real error of judgement and it shows the process was never really open-minded,” he said.