It claims that current employment law "deters small businesses from wanting to take on employees", restricting UK competitiveness and growth, and highlights the "terrible impact of current unfair dismissal rules".

Staff are said to be able to "coast along" because it is difficult to prove someone deserves to be dismissed without going through a process that is "lengthy, complex and hard to implement".

The proposed solution is to introduce a new dismissal process called ‘Compensated No Fault Dismissal’, which would allow employers to remove underperforming staff without fear of being referred to tribunal.

The only EU laws that would continue to apply would be the ones preventing dismissal based on a person’s gender, race or sexuality as unfair dismissal is purely a UK concept.

The draft report, which was written by the venture capitalist Adrian Beecroft, is said to have won the support of both the chancellor George Osborne and the Prime Minister.

However, it is expected to meet with strong opposition from some Liberal Democrats and trade unions, including Unite.

Steve Sibbald, nation officer at Unite, said UK employment law was already "too weak" and that the proposal would "be disastrous from an employment rights point of view".

"It would just encourage bad employers to be even worse," he added. "At least at the moment we have some sort of accountability for people who are dealing with peoples’ livelihoods, if it were weakened any more it would be a tragedy."

While Beecroft accepted that the "downside" to his proposal was that some people would be dismissed because their employer "did not like them" he argued that this was a "price worth paying" for the benefits.

These include a fall in unemployment, as any staff dismissed under the new scheme would be replaced (as the role itself is not made redundant) while the greater efficiency and competitiveness of UK businesses would lead to growth and the requirement for more staff.

However, Sibbald warned that an increasing disparity in UK society between those on high and low incomes could lead to "industrial, and maybe even civil, unrest".

"FTSE 100 company directors saw pay and bonus increases of 49% in 2010/11, yet we have all these people struggling," he added.