Swiss food company Nestlé has warned it may stop manufacturing KitKats and Smarties in the UK over a row about how much it has to pay each year to the Pension Protection Fund, according to a report by the Independent on Sunday newspaper.

The administrators of the PPF, set up earlier this year to provide a safety net for occupational pension schemes, are preparing to say how much it needs to raise from British business. They will next month call for as much as GBP700m (US$1.194bn) a year, more than twice the GBP300m it was estimated would be needed when the PPF was launched.

The row is understood to threaten up to 1,600 jobs in York, where Nestlé makes confectionery. The company has been told by the PPF that the “risk-based” levy it would have to pay could be as much as GBP12m a year. Nestlé had been expecting to pay only about GBP300,000.

The group’s chief executive, Peter Brabeck-Letmathe, is so unhappy about the high levy that Nestlé has threatened to move production of KitKats and Smarties to the Czech Republic.

The problem is that the formula used by the PPF – calculated using so called “failure scores” worked out by business information provider Dun & Bradstreet – does not take into account guarantees from the parent company. The PPF is talking about amending the calculations, but Nestlé is still concerned.

“It is our belief that if UK labour costs for any manufacturer get out of line because of increased costs, including pension provision, this could result in jobs being moved to more competitive locations. It would also cause companies to reconsider their current pension scheme offerings, which could lead to further scheme closures,” the company said in a statement.