Coalition tensions erupted today as Nick Clegg moved to block proposals backed by David Cameron's policy chief to let companies sack under performing workers.
Conservative MPs urged Mr Cameron not to let his Liberal Democrat junior partner kill off another business reform that they argue would encourage economic growth.
Chancellor George Osborne is due to appear before backbench Tory MPs tonight, and may face angry questions about whether he and the Prime Minister have fought hard enough to defend the so-called "fire at will" plans.
At stake is an unpublished report by the Tory donor and former venture capitalist Adrian Beecroft, recommending a shake-up of employment laws including a right for firms to sack employees, with compensation, without being taken to an industrial tribunal. A debate is raging over whether the no-blame terminations might apply only to micro-companies, new firms, young workers, or to all.
Peter Bone, Conservative MP for Wellingborough, said: "If Mr Clegg is flexing his muscles against these reforms it will not go down well with backbenchers. Clearly the focus of the report is to help the economy to grow, which is what everybody is crying out for."
Steve Hilton, the Prime Minister's policy chief who commissioned the study, is frustrated that he has not had support from the Chancellor in his fight against Liberal Democrat critics, including Business Secretary Vince Cable.
One source was quoted as saying they "might as well pack up and go home" if the proposals were dumped. Official Downing Street sources strongly denied that Mr Osborne was being criticised at No 10.
However, Whitehall sources close to Mr Clegg said: "We do not think 'fire at will' makes economic sense."
