Could unfair dismissal payouts be cut?

The reform may see figures capped at an employee's annual salary rather than the higher payouts, even though just six percent of unfair dismissal cases lead to awards of more than £30,000. The median award stands at just £5,000 to £6,000.

Currently, the level of compensation is thought to cause disincentives for businesses considering the cost of hiring.

Mr Cable says he is: "Making it easier for firms to hire staff while protecting basic labour rights." The move to slash the compensation awarded for unfair dismissal payouts is just one of a number of measures the business secretary has proposed to encourage employers to hire. His focus is on helping small businesses that are struggling to grow and hire in the current financial climate.

Despite the fact that the maximum payout is only awarded to between one and two percent of cases, Mr Cable believes the level of the maximum payout is a psychological deterrent for employers to hire more staff. He has dismissed the adoption of compulsory no-fault dismissal proposed by Adrian Beecroft - a venture capitalist - and commissioned by David Cameron. No fault dismissals would have made it easier for businesses to hire and fire employees without reason but it was supported by little over a third of private sector employers.

A new scheme is also proposed to come into force in summer 2013 which will allow employees and businesses to sign agreements which allow staff members to leave with an agreed compensation payment. However, by signing the agreement, the employee will forfeit the right to bring an emplyment tribunal claim.