Proposals contained in a report commissioned by David Cameron to scrap unfair dismissal laws have been savaged by the Liberal Democrats and trade unions.

The draft report seen by the Daily Telegraph suggests the rules that prevent companies sacking employees without good reason should be done away with in order to promote economic growth.

"Many regulations conceived in an era of full employment are designed to make employment more attractive to potential employees," it says.

"That was addressing yesterday's problem. In today's era of a lack of jobs those regulations simply exacerbate the national problem of high unemployment."

The report, written for Downing Street by venture capitalist and Tory donor Adrian Beecroft, attacks the "terrible" impact of the current unfair dismissal rules on the efficiency and competitiveness businesses.

"The rules make it difficult to prove someone deserves to be dismissed and demand a process for doing so which is so lengthy and complex that it is hard to implement," he says.

Beecroft says that some employees, comfortable in the knowledge they are safe from dismissal, "coast along" in their jobs.

"While it may seem counter-intuitive, even making it easier to remove under-performing employees will in the short run not increase unemployment as they will be replaced by more competent employees," he says. "In the long run it will increase employment by making our business more competitive."

"The downside of the proposal is that some people would be dismissed simply because their employer did not like them," he admits.

But adds: "While this is sad I believe it is a price worth paying for all the benefits that would result from change."

The proposal was attacked by Lib Dem MP Norman Lamb, a close ally of deputy prime minister Nick Clegg, as "madness".

"To throw away employment protection would be madness," he told BBC News. "That could be immensely damaging."

The idea was also savaged by trade unions. Unite general secretary, Len McCluskey, said he suspected the report had been leaked in order to appease the right-wing of the Conservative Party.

"It can’t be any coincidence that this sop to the right wing of the Tory party comes just 24 hours after the prime minister faced a massive revolt by his backbenchers demanding a referendum on Europe," he said.

"It is despicable that this government seeks to appease its voracious right wing by promising to crush any powers to defend themselves that workers in this country may have left."

Paul Kenny GMB general secretary said he was not surprised that a "well-heeled Tory venture capitalist" such as Beecroft would want to scrap employment regulations.

"This report shows the true face of the nasty Tory Party who are in fact the political wing of the rich and the elite. That is why Tories have yet to make any move to curb the greed of bankers and financiers who had to be bailed out with billions of pounds of public funds. Their excesses led to the 2.57m people now without work across the UK."

"Instead Tories attack the rights of ordinary working people not to be deprived of their incomes without good reason. What a shameless shower the elite have turned out to be that they are prepared to scrap the right that a fair process is followed when a worker faces the ultimate economic sanction of having their incomes taken away."

And TUC general secretary Brendan Barber said plan would help "nasty bosses" and horrify employees.

“Scrapping protection against unfair dismissal, even for people who have given years of loyal service, will do absolutely nothing to boost the economy. Indeed if people are constantly in fear of losing their jobs it will lead consumers to spend even less," he said.

“But while this proposal does nothing for growth, it does show the kind of economy those close to the prime minister want to create – one in which nasty bosses are given full license to undermine those trying to maintain decent standards.

“The clue is in the name. Employers already have plenty of powers to make fair dismissals. Giving them the right to act unfairly may go down well on the backbenches, but will horrify employees.”

But the suggestion was supported by Mark Littlewood, director general of the institute of economic affairs, who said current labour laws stop companies making necessary fast decisions.

“We need to create a business environment in which companies can take risks and make swift, smart decisions about employment," he said.

“Our present highly restrictive labour laws act as an impediment to this. They discourage businesses from taking on new workers. This is at a time when nearly 1 million young people are out of work.

“These leaked proposals show the government is starting to take the needs of British business seriously. They should have the courage to implement them.”

Earlier this month the government was announced it intended to change the current rules. Under the proposals workers would also only be allowed to claim unfair dismissal once they had been in a job for two years - an increase on the current 12 months.