Businesses have welcomed Government signals that it is to loosen the burden of red tape strangling firms.

John Hutton, the Business Minister, also indicated the Government would reduce its interference in the private sector.

He said the role of the Government in the workplace would be re-examined and employment rights could not be allowed to overshadow the competitiveness of the UK labour market.

“Having a multiplicity of employment rights does not amount to a great deal if you can’t get a job in the first place. The best employment policy is therefore one that allows the economy to remain strong and successful and helps businesses to keep creating more and more jobs.”

Mr Hutton said he was going to consult unions and employers over the next few months to discuss how to cut red tape without exposing workers to the risk of abuse, but said legislation was not the way to protect workers.

He added: “We need to challenge the automatic assumption that the only way to deal with exploitation in the workplace is by passing new laws.

“Instead, stronger enforcement and action to close any existing legal loopholes that allow a minority of rogue employers to evade their responsibilities, and undercut honest businesses, are often the more sensible way to proceed.”

Mr Hutton’s comments at a speech to the Fabian Society were applauded by the business community.

Chris Hannant, the head of policy of the British Chambers of Commerce, said the vast majority of issues at work were sorted out using common sense by employers and employees, without the need for Government interference.

He added “The cumulative regulatory burden on business has now reached £66 billion since 1998, and churning out rafts of fresh legislation will only serve to damage business competitiveness in uncertain economic times.”

And the Federation of Small Businesses said it was high time the Government changed its attitudes towards business legislation. FSB chairman John Wright said: “John Hutton’s comments reflect what we’ve been saying for some time.

“We’ve got to get the balance right between the needs of businesses and the needs of their staff. Many small businesses, which employ over half of the private sector workforce, feel that employment law has gone too far.

“The danger is that they stop creating employment opportunities as a result.”

But unions reacted with fury to Mr Hutton’s remarks. Construction union Acatt said he had “completely lost touch with reality”.

Acatt general secretary Alan Ritchie said: “Ministers such as John Hutton are addicted to the mantra of labour market flexibility. For ordinary workers that translates as being forced to work in a series of unstable jobs for low wages”