GEORGE Osborne has been warned by trade union leaders that adopting German-style mini-jobs, where employees pay no tax or national insurance, would create an underclass at the workplace.
The Chancellor is considering the radical step as part of a tranche of labour reforms designed to kickstart Britain's ailing economy.
Under the scheme, which was introduced in Germany a decade ago, workers can earn up to £314 a month tax-free.
They pay only a flat rate to cover pensions, social insurance and wage taxes, which means administration is made much simpler.
Mini-jobs are being credited with helping Germany's so-called jobs miracle which, in the first four years of the scheme operating, saw employment rise by one million.
Europe's powerhouse economy currently has one of the lowest rates of unemployment on the continent, at 6.8%.
Conservative MPs are urging Mr Osborne to adopt the scheme. One ally of the Chancellor said: "What I can tell you is that this is being looked at in Government. There are lots of ideas that are being looked at as part of the deregulation drive and this is one of them."
However, Len McCluskey, leader of the Unite union, said the mini-jobs scheme in Britain would create an underclass, adding: "Mini-jobs are a sticking plaster, a quick fix, which threatenes to create an even more divided society. They will do nothing to help Britain out of recession."
Meanwhile, the other side of the Coalition, the Liberal Democrats, were said to be monitoring the mini-jobs proposal and "looking at the options".
The Department for Business, Innovation and Skills, headed by LibDem Vince Cable, poured cold water on the mini-jobs idea, saying: "This proposal is a German solution designed to deal with particular issues in the German labour market, driven by their relatively high taxes on labour. This is quite different to the situation in the UK."
Holger Bonin from Germany's ZEW think-tank suggested claims for mini-jobs were overblown. He said the idea was that employers would get to know an employee and then hire them on a permanent basis, but in Germany "that hardly ever happens".
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