Trade Secretary Peter Mandelson has confirmed for the first time that the government might water down its pro-union laws outlined last summer.

He signalled that plans to abolish the £12,000 upper limit on compensation for unfair dismissal may be abandoned.

And he raised fears over the proposal to allow automatic union recognition where 50% plus one of the workforce were already members.

His comments, which will spark fresh concerns amongst the unions, came as he was cross examined by the powerful trade and industry committee of MPs.

There has been mounting speculation that the government is planning to cave in to industry demands for weaker proposals - originally contained in the "fairness at work" white paper published last May.

Higher limit

When pressed on the issue, Mr Mandelson told the MPs that no firm decisions had yet been taken on the two key areas of concern.

But he gave the strongest possible hint that the plan to abolish the upper limit on compensation was to be changed, probably by setting a new, higher limit instead.

"The government's aim and desire is clear, and that is to raise the amount of compensation that might be won by people who are successful in unfair dismissal cases.

"You can either do that by dramatically uprating, or removing the limit and leaving it at the discretion of the tribunals.

"We will decide in due course whether to maintain our original proposal or to vary it in some way in the light of the comment that has been made to us," he said.

"I don't think it's any secret that, unanimously, employer organisations have opposed the government proposal.

Principle right

"Certainly if employers were deterred by the abolition of the limit from taking on employees in the future then that would clearly be counter-productive," he said. And that has left many in no doubt that the original proposal is for the chop.

Committee challenges Mandelson

Turning to automatic recognition, he insisted the government was committed to the "principle" of its policy.

"I think that the principle of automatic recognition where a clear majority, 50% plus one, of a workforce are in membership of a union in a place of work should proceed to recognition without a ballot is a principle which was sound and which should be upheld in the Bill," he said.

But he immediately went on to raise doubts about the way the policy would be implemented, declaring: "Of course we will have to find the best terms and basis on which that can be affected in practice.

Need for safeguards

"There will be a desire to see safeguards incorporated into the procedure to meet valid concerns."

There have been suggestions that the government may water down the proposals by suggesting that the 50% limit would have to be met at every site of a company rather than across the firm as a whole. Mr Mandelson's use of the words "in the place of work" added to those worries.

Other suggestions are that individuals would have to be union members for a set time such as three months before their membership would be considered valid.

Earlier the trade secretary repeated Chancellor Gordon Brown's upbeat message about the economy, attacking the Tories for suggesting "the end of the world is nigh."