Pertemps and the CBI are calling for the government to resist EU moves to resurrect the draft Agency Workers Directive arguing that the directive, which proposes putting agency workers on an equal footing with permanent employees after just six weeks on assignment, will undermine the flexibility of temporary staff.

The call came as the two organisations revealed the findings of its survey of annual employment trends. It found that 58% of employers think the law would lead to a 'significant' cut in the use of temporary workers, 62% said the directive would damage flexibility, 65% said it would increase costs and 58% believed it would lead to more bureaucracy.

Pertemps chairman, Tim Watts, believes that the government and the EU should focus their attention on the issue of illegal workers. He told Recruiter: "We have the problem of illegal immigrants and people from Europe who are in theory legal but choose to work illegally, ie cash in hand. The government doesn't know the extent of illegal workers in the UK; they have said it is half a million but I would put the figure at double that.

"The government should come in and say these people have no rights. These workers are putting the costs up for agencies, therefore the seduction for employers to pay cash in hand is higher."

The report also found that 3% of employees in the workplace are temporary at any one time, representing 1.1m staff. In utility sectors such as energy and water, they represent as much as 7% of the workforce.

CBI director general, John Cridland, said temps face an "uncertain future" if the government gives into pressure for the new law. Use of temporary staff is vital for employers seeking to manage surges in demand, he added, while allowing a significant section of the workforce to work flexibly.

The report also found a steep rise in part-time and flexible working. Part-time working is now offered by 91% of employers, the report said — up from 84% in three years. Flexi-time is also up — from 31% in 2003 to 45% today.

Meanwhile, the number of employers offering career breaks and sabbaticals has almost doubled — from 20% three years ago to 37% this year.