Labour leader Ed Miliband has claimed a controversial report by a Downing Street adviser which called for changes to make it easier for businesses to sack people shows the "nasty party" was back.
But David Cameron dismissed the attack over the "good report" he commissioned from venture capitalist Adrian Beecroft, claiming Labour opposed any changes because Mr Miliband was "in the pocket of the trade unions".
Mr Cameron told MPs the report contained excellent ideas but the Government was consulting on the idea of no-fault dismissal only for "micro-businesses".
The report's proposals have highlighted tensions within the coalition, with Liberal Democrat Business Secretary Vince Cable saying the no-fault dismissal idea was "complete nonsense".
Mr Miliband said: "Adrian Beecroft, the Prime Minister's adviser, says the law should be changed to allow employers to fire people at will.
"The Business Secretary says it is the last thing Government should do."
Asked whether he agreed with Mr Beecroft or the Business Secretary, Mr Cameron said: "We need to make it easier for businesses to grow, for businesses to take people on, for businesses to expand.
"The Beecroft report, which I commissioned, had a number of excellent ideas that we are taking forward.
"We are doubling the qualifying period for unfair dismissal, we are exempting businesses with less than 10 people from new EU regulations, we are exempting a million people who are self-employed from health and safety.
"We are consulting on no-fault dismissal, but only for micro-businesses. It was a good report and it's right that we take forward its best measures."