Alistair Darling had intended to raise rates by 5% from today but said last night, in light of the dramatic decline in inflation, rates would be reduced to 2%, with the remaining 3% being introduced over the next two years.

Business rates are local taxes charged on non-domestic properties and raise around £20bn a year in tax revenues.

Darling said that the move would still "provide real and genuine help for businesses" as they faced the recession.

According to the Federation of Small Businesses, local authorities will write to rate payers, offering them the option of deferring part of the increase. This is likely to take place in the summer.

The move is a further embarrassment to the chancellor and follows pressure from businesses and trade bodies to reduce the planned rate increase.

Also see:
UK officially in recession
BPIF and Unite demand action in joint letter to Chancellor