Cost will now be spread over three years to ease burden on businesses

Chancellor Alistair Darling has decided to defer a £600m increase in business rates scheduled to come into effect today, instead spreading the cost over three years.

Without Darling's intervention, rates would have increased by 5% today, reflecting last September's spike in inflation. Instead they will rise by 2% immediately, with the remaining rises due in the two years from 2010. However, businesses will face the full 5% rise over the next four months, because legislation will not be introduced until August at the earliest

In a statement the government said it recognised that “many businesses also need help now to ease cash flow.” It said the upshot would be to defer about £600m of business rates across 1.6 million properties, boosting their cash flow for the current year.

Alistair Darling said: "The government recognises that businesses need help now to ease their cash flow at a time when money is very tight. This measure will help businesses to smooth their rates payments over the next few years to deal with the effects of the recent spike in inflation."

The move was welcomed by Richard Lambert, the CBI's director general, who said it was a “step in the right direction.” Lambert said: “This is helping companies at a critical time by improving cash flow.”

However he said the CBI was still campaigning for a two-year freeze on business rates.

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