Yesterday the government passed an order to modify employment law by extending the qualifying period for unfair dismissal from 12 months to 2 years. The use of a statutory instrument meant that a full debate on the floor of the House was unnecessary; the government justified its decision by pointing out that the change was announced last November after consultation. Meanwhile, the bigger debate – about the impact of ever-increasing employment regulation on UK economic growth – is taking place between the coalition partners, and continues to expose the differences between them.

Last week, George Osborne vented his frustration with the Liberal Democrats by calling on businesses to lobby the government in favour of Adrian Beecroft's recommendations. Yesterday, the new Liberal Democrat business minister Norman Lamb countered with a suggestion that employers wanting to get rid of poorly performing employees should be able to write to them offering a dismissal compensation package. Depicted as an adaptation of the Beecroft proposal for no-fault dismissal, Mr Lamb seems to think that his  idea will find favour with business. I suggest it's more likely to reinforce expectations among employees that, regardless of performance, they can expect employers to cough up a substantial pay-off to avoid the bother of a tribunal claim.

Yesterday's change to unfair dismissal law certainly falls well short of the Beecroft recipe. In an attempt to respond to business concerns that disgruntled employees face no risks when filing claims, it included provisions enabling tribunals to demand bigger upfront payments from a claimant whose case is palpably weak, and to make higher costs awards against either party. Whether the tribunals will make much use of these disincentives is a moot point, however; costs orders against employees are rare and tend to fall well below existing limits. Nor is the traffic all one way: yesterday also saw a rise in the compensation limit an employee can claim for unfair dismissal, from £68,400 to £72,300.

Had these changes been debated fully in the House yesterday, more attention might have been drawn to the inadequacy of the measures in comparison with the tidal wave of new regulation bearing down on businesses. The new qualifying period will not, for example, apply to claims for compensation for dismissal (or other perceived unfair treatment) on grounds of gender, race, sexual orientation or a whole panoply of so-called “protected characteristics.” The scope for such claims was massively increased by the 2010 Equality Act, which created a legal minefield for employers, opening up claims for indirect, associated and third party discrimination. Furthermore, discrimination-based claims of any kind are not subject to any compensation limit. Hence the £4.5million award last year to a Polish doctor sacked while on maternity leave, and £1m compensation for a black NHS manager disciplined for overspending. The threat of unlimited damages is so daunting to employers, especially small businesses, that they are more likely to settle a case than take the risk of bankruptcy or ruin. Yesterday's SI does not reduce that risk.

There is no logical argument for unlimited compensation; indeed, it runs counter to the spirit of the industrial tribunal system, which was originally set up with the intention of providing quick and informal resolution of employer-employee disputes. If George Osborne wants to make a business-friendly change to employment law that will not scare the LibDems, he should introduce a cap on all employment tribunal awards, in line with the unfair dismissal ceiling. And if the new two-year qualifying period is to have real meaning, it should be extended to claims on grounds of equality, thus removing the incentive for employees to try and circumvent the time limit with imaginative claims.

There is plenty more the government could do, without waiting to hear from businesses again. First and foremost, it should refrain from introducing additional burdens on employers. New rights for all staff to request flexible working, as well as enhancing paternity leave, might sound family friendly but will lead to a mountain of paperwork as well as more uncertainty for employers. The agency workers directive, adopted last autumn with no government resistance, is expensive for business, limits flexibility and discourages hiring. And despite wanting to encourage charities and social enterprise to take on services formerly carried out by the public sector, the government's failure to moderate the impact of TUPE (the Transfer of Undertakings Protection of Employment Regulations) means that such enterprises often cannot afford the generous pay, pensions and perks attached to staff they might otherwise aim to hire.

As on so many growth-related topics, Conservatives in the coalition are failing to make the case for growing jobs by curbing regulation. Last September, writing my first column in this slot, I lamented the Tories' decision to set up the Beecroft review, pointing out that the deregulatory moves they needed to make were already quite clear, not least from reports supplied by business organisations. (I also suggested that asking a major Tory donor and backer of the No to AV campaign to conduct such a review was hardly going to make its conclusions attractive to the Lib Dems.) Six months on, with Beecroft completed, the Chancellor is asking businesses to lobby him all over again. On an issue of such urgency, this policy stagnation is not merely frustrating, it is also further evidence that the open warfare being waged between coalition partners is inhibiting the government's ability to tackle its biggest and most important challenge: getting the economy moving again.