Andrew Grice: Hilton's hubris exposes split at heart of government

In an uncharacteristic slap down for Steve Hilton, David Cameron's free-thinking strategist, the Government is to make it easier for companies to hire workers but not to fire them.

An increasingly frustrated Mr Hilton has been urging the Prime Minister to dilute the right of employees to claim unfair dismissal, lobbying hard for a proposal by Adrian Beecroft, a venture capitalist and Conservative Party donor, who has reviewed employment laws as part of the Government's drive to boost growth.

Mr Beecroft wants small firms to be able to dismiss staff who are "coasting," but the plan ran into opposition from Vince Cable, who argued there was no evidence to support the idea that it would encourage firms to recruit. He mobilised Nick Clegg, who told Mr Cameron he would not support it. The Prime Minister said yesterday: "Clearly, we have to make it easier for firms to hire people."

Government sources confirmed the Beecroft plan had been blocked. "Steve Hilton is really worked up about this," said one. "He has been banging his fist on the table and saying we have got to go for it if we are serious about growth. But no one has produced any evidence that it would help."

The plan has provoked briefing wars in Whitehall. Mr Hilton's allies have been accused of leaking it in an attempt to win support, while Number 10 has been forced to deny speculation that Mr Cameron and George Osborne are at odds over the Chancellor's reluctance to adopt radical growth measures.

Mr Hilton is said to be exasperated by the lack of progress on deregulation and Lib Dems suggest he has "gone rogue".

The former adman, famous for padding around Number 10 in his socks, has clashed repeatedly with Mr Osborne.