Britain's "terrible" employment laws are undermining economic growth and should be overhauled, according to the confidential report obtained by The Daily Telegraph

It says that British workers should be banned from claiming unfair dismissal so that firms and public sector bodies can find more capable replacements.

Under current regulations, workers are allowed to "coast along" and employers are left fearful of expanding because new staff may prove "unknown quantities" who are impossible to sack, the report says.

The radical recommendation to scrap the concept of unfair dismissal is made by Adrian Beecroft, a venture capitalist, in a report commissioned by David Cameron.

The report is understood to have the support of both the Chancellor and Downing St, although the proposals are likely to meet with strong opposition from some Liberal Democrats and trade unions.

While Downing Street is aware that the proposal will be controversial, it is equally concerned that the scale of the economic crisis is such that dramatic measures are required to promote growth.

A final draft of the Beecroft report, dated Oct 12 2011, says the first major issue for British enterprise is "the terrible impact of the current unfair dismissal rules on the efficiency and hence competitiveness of our businesses, and on the effectiveness and cost of our public services."

The report continues: "The rules both make it difficult to prove that someone deserves to be dismissed, and demand a process for doing so which is so lengthy and complex that it is hard to implement.

This makes it too easy for employees to claim they have been unfairly treated and to gain significant compensation."

Mr Beecroft in particular highlights abuses of the law in the public sector, where managers have been forced to offer under-performing staff large settlements because they fear costly tribunal rulings. The report says that the unfair dismissal rules have made public bodies "reluctant to dismiss unsatisfactory employees". "[They] therefore accept inefficiency that they would not tolerate if dismissal of unsatisfactory employees was easier."

It goes on: "A proportion of employees, secure in the knowledge that their employer will be reluctant to dismiss them, work at a level well below their true capacity; they coast along."

The recommendation is particularly aimed at helping lift the burden of red tape from small and medium-sized businesses, which lack the human resources departments and expertise to deal with complex tribunals.

The report concludes that there is nothing in European law that would prevent the Government from abandoning unfair dismissal laws - although regulations preventing dismissal on the basis of a person's gender, race or sexuality would remain.

However, Mr Beecroft warns that simply scrapping the law would be "politically unacceptable".

He therefore recommends a replacement regulation, called Compensated No Fault Dismissal, which would allow employers to sack unproductive staff with basic redundancy pay and notice. Mr Beecroft concedes that a "downside" under his new scheme is that employers could fire staff because they "did not like them".

"While this is sad I believe it is a price worth paying for all the benefits that would result from the change", he says.

The confidential report has been circulated across Whitehall this week and its findings are understood to have been discussed with business leaders, who are said to support the key recommendation.

Downing Street was not planning to release the analysis but is now expected to publish the report later this year, partly to counter inaccurate reports that suggested the report advocated cutting maternity rights.

Mr Beecroft insists that making it easier for firms to sack under-performing staff will boost employment, rather than increase unemployment.

He says: "In the long run it will increase employment by making our businesses more competitive and hence more likely to grow

Source: The Daily Telegraph