One in five firms is planning to get rid of staff to help pay for new rises in National Insurance Contributions, according to a business lobby.
The extra payments will fund the NHS
The British Chambers of Commerce (BCC) said that small and medium-sized companies would be hardest hit with one-third saying they expected job cuts as a direct result of the rise.
Almost nine out of 10 of the businesses surveyed by the BCC said the higher charge would have some adverse impact on their business.
The 1% increase in employer National Insurance contributions comes into effect on 6 April. It was announced by Gordon Brown in his Budget last year.
Paying for extra doctors
"The Chancellor could not have picked a worse time to introduce this increase," said BCC President Isabella Moore.
"Those companies that are not looking to cut jobs are intending to cut wages, investment or research. Their only other option is to increase debt.
"This could be the final nail in the coffin for some businesses," she warned.
A Treasury spokesman said: "The 1% increase in National Insurance contributions is purely to fund the NHS, and means there will be 74,000 more nurses, 20,000 more doctors and almost 100 new hospitals than in 1997.
"Health care costs are rising right around the world, but businesses in the UK are being asked to pay much, much less than in other countries such as France and Germany."
'Out of control'
About one in 10 firms told the BCC they had considered or were considering relocating their operations to another country.
When asked what the government could do to improve productivity in the UK, most said that tax and regulation should be reduced.
Digby Jones, head of industry lobby group the CBI, is also warning that the government is putting too high a financial burden on companies.
"If his (Gordon Brown) aim is to achieve full employment then there really must be no increases in taxation and no more labour regulation.
"With minimum standards in place, there is a risk that the costs of employing people will get out of control and those at the labour market margins will not experience the world of work," he said.
Mr Jones will use a speech in London on Monday evening to warn the Chancellor about rises in the costs of employing people.
The CBI estimates that in 2003 the government will add an extra £5bn to the cost of employing people through rises in National Insurance and the minimum wage and new parental employment rights.