Business leaders in Scotland have reacted with horror after the Conservative immigration floated the idea of charging businesses £1,000 a year if they hire an EU national after Brexit.
Robert Goodwin told peers that the move could encourage companies to employ UK workers.
But within hours No 10 had distanced itself from the levy, saying that it was not on the Conservative Government's "agenda".
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Liz Cameron, the chief executive of the Scottish Chambers of Commerce, said that a £1,000-a-year charge would be a "concerning move by the UK Government, especially when many businesses are already dealing with skills shortages and recruitment challenges.
"At a time when companies are managing the pressures of the upfront costs of doing business, the imposition of this levy would be an additional tax burden on business and may stall expansion plans or impact on investment in additional recruitment.”
Professor Graeme Roy, of the Fraser of Allander Institute, told MPs that access to skilled EU migrants was already a key issue for many Scottish businesses, even before Brexit.
Certain industries, such as hospitality and the universities sector, would be particularly hard hit by a levy, he suggested.
"Anything that potentially acts as a long term barrier to access to skilled migrants will potentially have a negative impact (on the economy),” he added.
No 10 said that the £1,000 tax was one of a “number of things that some people have suggested”.
But a Downing Street spokesman added: “It is not on the government’s agenda.”
Tory ministers are bringing in a similar charge for workers from outside the EU from April.
Robert Goodwill, a Home Office minister, told peers: “If you want to recruit an Indian computer programmer on a four-year contract on top of the existing visa charges and the resident labour market test there will be a fee of £1,000 per year.
He added: “That is something that currently applies to non-EU and it has been suggested to us that could be applied to EU.”
He went on: “It would be helpful to the British economy and to British workers who feel they are overlooked because of other people coming into the country getting jobs they would themselves like to get.”
Tory MP Anna Soubry warned that the idea would be a “tax on successful businesses”.
She added that stopping businesses from bringing in "the workers they need will do nothing to help unemployed Brits, and will do everything to damage our economy”.
Liberal Democrat shadow business secretary Don Foster described the idea as the “most idiotic thing to come out of a Minister’s mouth since (last month's) ‘red white and blue Brexit’.
"Be under no illusions, this plan would kill off British businesses,” he added.
Meanwhile, Alistair Fitt, the vice-chancellor of Oxford Brookes University, has warned the Brexit will “probably be the biggest disaster for the universities sector in many years”.
The row came as the Bank of England governor Mark Carney told MPs it was possible and desirable for UK to remain part of the EU's customs union after Brexit.