Vince Cable has admitted that the new EU employment laws coming into force next month 1st October 2011, will hit the economy hard and could cost businesses up to an extra £1.16bn a year. He claimed that union bosses back the new rules so the Government was powerless to act.

In a private letter to Coalition colleagues, leaked to the Daily Mail, the Liberal Democrat Business Secretary and his deputy, Edward Davey, insist: ‘Our ability to make changes is constrained.’

Vince Cable has said the new EU laws will be hard to change and that businesses have genuine concerns about the costs the regulations may impose on them.

If the Government were to change the regulations without agreement it could cause them to be confronted with a legal challenge, which could make the situation even worse. Just as Britain teeters on the brink of a double dip recession, the regulations are said to cost British businesses £1.16bn a year. The regulations will mean that 1.3 million temporary agency staff with be entitled to the same salaries, holidays and overtime pay as their full time colleagues after a twelve week qualifying period.

But in their letter, Mr Cable and Mr Davey say: ‘Our ability to make changes to the the agency workers regulations is constrained because they are based to a significant degree on the CBI and TUC agreement also brokered by the previous administration. The unique legal situation means amendments we might have made, which did not have the agreement of both those parties, could be ruled illegal by the courts.’

This could mean that the twelve week qualifying period could be overturned and employees could get the same rights from day one.

‘Unfortunately it has not been possible to find a way forward that would be acceptable to both parties,’ say the ministers.

One Whitehall source said the attitude of Lib Dem ministers to the issue had been ‘pretty feeble’.

Chris Heaton-Harris, Conservative MP for Daventry and a former Euro MP, said: ‘At a time when we need more growth, the EU has come along with a measure that makes our labour market less flexible, adds a mass of red tape to small businesses and will cost our economy millions.

‘It is time to stop the never-ending flow of regulation from Brussels.’

But a source close to Mr Cable dismissed the criticism, saying: ‘Vince and Ed Davey were as frustrated as everybody else, and wrote this letter at the instigation of the Conservatives, who thought it would be useful to explain the situation.’