The Forum of Private Business (FPB) is concerned that the government plans to increase the minimum wage to reduce the effect of the 10p tax loss will cause more problems for small traders.

Officials from the forum say the move will cause smaller businesses to put up their prices and could lead to greater unemployment.

Phil Orford, FPB chief executive, said: "Any notion that the UK's businesses should be required to pick up the tab for the government's hashed personal taxation policies is totally ludicrous.

"This is not even a stealth tax; it is a blatant attempt to retain revenues generated by the removal of the 10p personal taxation rate by forcing businesses to bear the financial burden through increases in the minimum wage.

"We cannot quite believe that it is being put forward as a serious solution."

In 2005, following a major study of 2,000 firms, the FPB wrote to the Low Pay Commission warning that the minimum wage was hurting small firms.

The FPB now believes that, in order to ease its impact on smaller businesses, the minimum wage should be set following sound economic calculations, not in order to achieve short-term political aims.