An attempt to stall legislation giving new rights to agency and temporary workers failed on Wednesday after ministers abstained from a crucial vote.

Business reacted with dismay and the Tories accused the government of “dithering” and failing to stand up to its backbenchers.

The EEF, the industry body for engineering and manufacturing, said: “Regulation such as the current bill can only increase manufacturers’ costs and administrative burdens. That threatens UK manufacturing jobs.”

The CBI employers’ organisation added: “This bill deserves to fail. It is bad legislation that would be damaging for business and [would] not benefit vulnerable workers.”

The government’s abstention came at the start of the committee stage of a private members’ bill to give agency and temporary workers the equivalent salary, paid holiday, overtime and sick pay of full-time staff. Business has warned the legislation will cost tens of thousands of jobs.

Previous moves in Europe to give agency workers equal treatment have been blocked by the government, but Gordon Brown is under pressure to offer concessions after more than a third of Labour MPs voted for the bill in February. The prime minister hopes to circumvent further pressure from Europe to cede greater rights by setting up a domestic forum involving business and unions to reach a consensus. Mr Brown wants agreement from Brussels that such a forum would allow the UK to adopt a more flexible approach to new European legislation.

Pat McFadden, employment minister, argued that the government needed more time to resolve the issue at European level. But he refused to back both main opposition parties on a vote that would have deferred the passage of the bill through parliament. The opposition amendment was defeated after the Labour MPs on the committee voted for the bill to go ahead.

“This is a government that is following its backbenchers,” Jonathan Djanogly, shadow business minister, told the FT. “If the minister had voted in favour of [the opposition amendment], then the bill would not have been given a timetable . . .  This is yet another example of dithering by the government on an issue of vital importance to business.”

Officials rejected suggestions that the government had changed its stance. The department for business said Mr McFadden “does not support the bill, but he’s happy for discussions to continue at this stage”. Mr Brown’s headache over the issue is set to worsen because of resistance from large unions to his proposal for a forum.

Tony Woodley, joint general secretary of Unite, and Paul Kenny, general secretary of the GMB, are refusing to back the forum unless ministers give commitments on its power and scope. They fear it would be used to kick the issue of agency workers into the long grass.

The Trades Union Congress, however, appears less hostile to the idea. “The government’s proposals have yet to convince unions that they do enough to deliver a fair deal for agency workers, but serious discussions continue,” the TUC said.